THE ECONOMIC IMPACTS AND BENEFITS OF TOURISM IN …

THE ECONOMIC IMPACTS AND BENEFITS OF TOURISM IN AUSTRALIA

A GENERAL EQUILIBRIUM APPROACH

By Larry Dwyer, Peter Forsyth, Ray Spurr and Thiep Ho

THE ECONOMIC IMPACTS AND BENEFITS OF TOURISM IN AUSTRALIA

TECHNICAL REPORTS The technical report series present data and its analysis, meta-studies and conceptual studies, and are considered to be of value to industry, government and researchers. Unlike the Sustainable Tourism Cooperative Research Centre's Monograph series, these reports have not been subjected to an external peer review process. As such, the scientific accuracy and merit of the research reported here is the responsibility of the authors, who should be contacted for clarification of any content. Author contact details are at the back of this report.

EDITORS Prof Chris Cooper Prof Terry De Lacy Prof Leo Jago

University of Queensland Sustainable Tourism CRC Sustainable Tourism CRC

Editor-in-Chief Chief Executive Director of Research

National Library of Australia Cataloguing in Publication Data Economic impacts and benefits of tourism in Australia : a general equilibrium approach.

Bibliography. ISBN 1 920704 10 8.

1. Tourism - Australia - Econometric models. 2. Australia - Economic conditions - Econometric models. I. Dwyer, Larry, 1947- . II. Cooperative Research Centre for Sustainable Tourism.

338.47910994

Copyright ? CRC for Sustainable Tourism Pty Ltd 2004 All rights reserved. Apart from fair dealing for the purposes of study, research, criticism or review as permitted under the Copyright Act, no part of this book may be reproduced by any process without written permission from the publisher. Any enquiries should be directed to Brad Cox, Communications Manager [brad@.au] or Trish O'Connor, Publishing Manager [trish@.au].

Acknowledgements The Sustainable Tourism Cooperative Research Centre, an Australian Government initiative, funded this research.

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A general equilibrium approach

CONTENTS

SUMMARY ____________________________________________________________________________ VI

CHAPTER 1 INTRODUCTION ____________________________________________________________ 1

CHAPTER 2 THE ECONOMIC IMPACTS OF TOURISM GROWTH ___________________________ 3

FACTORS LIMITING SIZE OF ECONOMIC IMPACTS _________________________________________________ 3 Industry Linkages and Leakages ___________________________________________________________ 3 Factor Supply Constraints ________________________________________________________________ 3 Labour______________________________________________________________________________ 4 Land _______________________________________________________________________________ 4 Capital______________________________________________________________________________ 5 Exchange Rate Appreciation ______________________________________________________________ 5 Fiscal Policy __________________________________________________________________________ 5

CHAPTER 3 ESTIMATING THE ECONOMIC IMPACTS OF TOURISM GROWTH _____________ 7

INPUT-OUTPUT ANALYSIS ___________________________________________________________________ 7 LIMITATIONS OF INPUT-OUTPUT ANALYSIS______________________________________________________ 7

CHAPTER 4 NEED FOR A GENERAL EQUILIBRIUM PERSPECTIVE TO ECONOMIC IMPACT ESTIMATION___________________________________________________________________________ 8

THE GENERAL EQUILIBRIUM PERSPECTIVE ______________________________________________________ 8 COMPUTABLE GENERAL EQUILIBRIUM MODELLING _______________________________________________ 8

Behavioural Assumptions ________________________________________________________________ 9 Equilibrium Conditions __________________________________________________________________ 9 Exogenous Variables____________________________________________________________________ 9 Economic Environment_________________________________________________________________ 10 ACCEPTANCE OF CGE ANALYSIS IN OTHER SECTORS _____________________________________________ 10 CGE MODELLING IN TOURISM ______________________________________________________________ 11 THE AUSTRALIAN EXPERIENCE OF CGE MODELLING IN TOURISM ___________________________________ 11 EXPERIENCE IN OTHER COUNTRIES ___________________________________________________________ 12

CHAPTER 5 THE STCRC ECONOMIC MODELLING PROJECT ____________________________ 13

MODELLING TOURISM TO NEW SOUTH WALES: AN INITIAL STUDY __________________________________ 13 MODELLING TOURISM TO NEW SOUTH WALES: RECENT RESULTS ___________________________________ 13

The Context __________________________________________________________________________ 13 Types of Simulations___________________________________________________________________ 14 Overview of Results and Issues for Further Research__________________________________________ 15

CHAPTER 6 ECONOMIC EVALUATION OF EVENTS USING CGE MODELS _________________ 18

EVALUATION OF EVENTS ___________________________________________________________________ 18 ADDITIONAL PERSPECTIVES FROM THE CGE APPROACH___________________________________________ 18

The Choice of Jurisdiction ______________________________________________________________ 18 Regional and National Impacts ___________________________________________________________ 19 Multi State Events _____________________________________________________________________ 19 Tax Revenue Implications_______________________________________________________________ 19 Event Subsidies _______________________________________________________________________ 19 Inter-Industry Effects __________________________________________________________________ 19 Differential Impacts of Interstate and Overseas Visitors________________________________________ 20 ADAPTING CGE MODELS TO STUDY EVENTS_____________________________________________ 20 Modelling the Multi State Economy _______________________________________________________ 20 Displacement Effects___________________________________________________________________ 20 Introducing an "Events" Industry _________________________________________________________ 20 EVENTS CASE STUDIES ____________________________________________________________________ 21 RESULTS _______________________________________________________________________________ 21 Relative Size of Impacts ________________________________________________________________ 22 Interstate Impacts _____________________________________________________________________ 22 Inter-Industry Effects __________________________________________________________________ 22

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THE ECONOMIC IMPACTS AND BENEFITS OF TOURISM IN AUSTRALIA

Relative effects of interstate and overseas visitor expenditure ___________________________________ 22 A PERSPECTIVE ON EVENT EVALUATION_______________________________________________________ 23 CHAPTER 7 OBJECTIONS TO CGE APPROACHES _______________________________________ 24 COST AND AVAILABILITY __________________________________________________________________ 24 ARE THE RESULTS MUCH DIFFERENT? ________________________________________________________ 24 THE UNDERLYING ASSUMPTIONS ____________________________________________________________ 25 CGE IN ANALYSING LOCAL IMPACTS _________________________________________________________ 25 CHAPTER 8 EXTENSIONS ______________________________________________________________ 27 TOURISM SATELLITE ACCOUNTS _____________________________________________________________ 27 DYNAMICS AND ENDOGENOUS GROWTH _______________________________________________________ 28 MEASURING BENEFITS OR WELFARE GAINS ____________________________________________________ 28

Application: Measuring the Benefits of Additional Tourism to NSW _____________________________ 28 CHAPTER 9 ISSUES FOR FURTHER RESEARCH _________________________________________ 31 ECONOMIC IMPACTS OF DIFFERENT TYPES OF TOURISTS___________________________________________ 31 ALTERNATIVE ASSUMPTIONS ABOUT THE ECONOMIC ENVIRONMENT _________________________________ 31 INCORPORATING ENVIRONMENTAL COSTS OF TOURISM ___________________________________________ 31 MEASURING REGIONAL IMPACTS_____________________________________________________________ 32 ECONOMIC IMPACTS OF TOURISM IN DEVELOPING COUNTRIES ___________________________ 32 ECONOMIC IMPACTS OF OUTBOUND TOURISM___________________________________________ 32 ANALYSING THE TAXATION OF TOURISM ______________________________________________________ 32 ASSESSING THE ECONOMIC IMPACTS OF SPECIFIC SECTORS ________________________________________ 32 AVIATION POLICY CHANGES ________________________________________________________________ 33 EVALUATING TOURISM PROMOTION __________________________________________________________ 33 EXPLORING THE INFRASTRUCTURE REQUIREMENTS OF TOURISM GROWTH_____________________________ 33 ESTIMATING THE IMPLICATIONS OF TOURISM GROWTH FOR RESOURCE USE ___________________________ 33 CHANGES IN TOURISM COMPETITIVENESS ______________________________________________________ 33 TOURISM SATELLITE ACCOUNTS _____________________________________________________________ 33 CHAPTER 10 CONCLUSION ____________________________________________________________ 35 APPENDIX A: THE M2RNSW MODEL ___________________________________________________ 36 APPENDIX B: ECONOMIC IMPACTS OF TOURISM TO NEW SOUTH WALES AND THE REST OF AUSTRALIA ________________________________________________________________________38 REFERENCES _________________________________________________________________________ 49 AUTHORS_____________________________________________________________________________ 53

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A general equilibrium approach

LIST OF TABLES

Table 1. Summary Of Maximum Impacts On New South Wales And Roa Of Simulations Of Ten Percent Increase In Tourism, Short Run, 2000-01________________________________________________14

Table 2. Economic Impacts Of $1 Million Increase In Tourist Expenditure By Origin Market, Short Run, 2000-01 __________________________________________________________________________15

Table 3. Economic Impacts, Large Event ______________________________________________________ 21

Table 4. Economic Impacts, Small Event ______________________________________________________ 21

Table 5. Differential Impacts Of Inbound And Interstate Expenditure _______________________________ 22

Table 6. Calculation Of Net Benefits, 10% Increase In International Tourism To Nsw ($M) ______________ 29

Table 7. Net Benefit: Different Sources Of Additional Tourism To Nsw ($M) _________________________ 29

Table 8. Calculation Of Net Benefits: Alternative Cost Of Labour ($M)______________________________ 30

Table 9. Summary Of Maximum Impacts On New South Wales And Roa Of Simulations Of Ten Percent Increase In Tourism, Short Run, 2000-01________________________________________________40

Table 10. Economic Impacts Of $1 Million Increase In Tourist Expenditure By Origin Market, Short Run, 2000-01 _________________________________________________________________________ 42

Table 11. Summary Of Maximum Impacts On New South Wales Of Simulations Of Ten Percent Increase In Tourism, Long Run, 2000-01_______________________________________________________ 43

Table 12. Economic Impacts Of $1 Million Increase In Tourist Expenditure By Origin Market, Long Run, 2000-01 ________________________________________________________________________44

Table 13. Positive Employment Effects On Selected Industries In New South Wales Of A Ten Percent Increase In Demand For New South Wales Tourism, By Origin Market, Short Run (%)__________45

Table 14. Negative Employment Effects On Selected Industries In New South Wales Of A Ten Percent Increase In Demand For New South Wales Tourism, By Origin Market, Short Run (%)__________45

Table 15. Positive Employment Effects On Selected Industries In New South Wales Of A Ten Percent

Increase In Demand For New South Wales Tourism, By Origin Market, Long Run (%)

47

Table 16. Negative Employment Effects On Selected Industries In New South Wales Of A Ten Percent Increase In Demand For New South Wales Tourism, By Origin Market, Long Run (%) __________47

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