Boosting tourism's contribution to growth and development: Analysis of the evidence

• Author: Martín Cicowiez,Emily J. Morris,Adela Moreda,Onil Banerjee
• Date: 01 August 2018
• Published date: 01 August 2018
• DOI: http://doi.org/10.1111/rode.12385

REGULAR ARTICLE

Boosting tourism’s contribution to growth and

development: Analysis of the evidence

Onil Banerjee

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Mart

ın Cicowiez

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Emily J. Morris

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Adela Moreda

1

1

Inter-American Development Bank,

Washington, D.C

2

Universidad Nacional de la Plata, La

Plata,Argentina

3

University College London, London,

United Kingdom

Correspondence

Onil Banerjee, Inter-American

Development Bank, Environment, Rural

Development, Environment and Disaster

Risk Management Division, 1300 New

York Avenue N.W., Washington, D.C.,

20577.

Email: onilb@iadb.org

Funding Information

This study was funded by the Inter-

American Development Bank.

Abstract

The tourism sector’s contribution to economic develop-

ment depends upon complex and dynamic socioeco-

nomic, environmental, and institutional factors.

Policymakers require objective evidence to base deci-

sions on which public policies or investments to pur-

sue. In this paper we develop an economy-wide

approach to assessing public investments in tourism.

The approach is powerful in that it considers all inter-

sectoral linkages that are critical for tourism-sector

analysis. This framework is linked to a microsimulation

module that enables estimation of household-level and

destination-specific impacts and the distribution of ben-

efits. To illustrate the framework and the insights it

can generate, we apply it to a public investment in

Belize’s Cayo District. Our findings show that the

overall level of economic activity increases while an

appreciation of the real regional exchange rate results

in slower growth in traditional nontourism exports.

Greater availability of capital and labor to meet

increased demand would reduce this effect. The invest-

ment results in a reduction in the poverty headcount on

the order of 0.7 percentage points, though there is a

small increase in inequality that is a function of the

skill requirements of the new positions created as a

result of the investment.

DOI: 10.1111/rode.12385

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©2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2018;22:1296–1320.

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INTRODUCTION

Belize boasts diverse natural resources as well as rich cultural heritage, which provide a range of

attractions for tourists. Since 2000, tourism has grown to be an important sector of Belize’s econ-

omy, with around 340,000 overnight visitors in 2015 and a further 960,000 cruise arri vals. The

World Travel and Tourism Council (WTTC) estimates that the industry’s direct contribution to

GDP grew from 8.5 percent in 2000 to 13.9 percent in 2016 (WTTC, 2016). As expressed by the

government of Belize, tourism has strong potential for further expansion, and is therefore a priority

sector for Belize’s economic development strategy (Government of Belize, 2012, 2015).

The tourism supply chain involves a wide range of sectors of society and the economy. The

industry’s contribution to growth, poverty reduction, and long-term development depends upon

complex and dynamic economic, social, environmental, and institutional linkages, spillovers, and

externalities. To maximize the positive effects and minimize the negative ones, policymakers need

to understand what types of tourism, and kinds of policies, are associated with the most beneficial

outcomes, and how they can stimulate the types of private sector innovation and investment (do-

mestic and international, large and small) that foster these outcomes.

In this study we develop an evidence-based tool to guide public policy and inves tment choices,

to maximize developmental returns from tourism. We develop tourism-extended social accounting

matrices and dynamic computable general equilibrium (CGE) and microsimulation models for

Belize, at both national and regional levels. This framework builds on Banerjee, Cicowiez, and

Gacho (2015), and Banerjee, Cicowiez, and Cotta (2016), in four main ways: (i) the framework

developed here is the first multiregional CGE model for Belize, a data scarce country, and one of

the few multiregional models developed for the Latin American and Caribbean Region; (ii) the

linked microsimulation model is one of the first applications of Belize’s only household income

and expenditure survey implemented in 2008/2009 and thus makes an important contribution by

facilitating future research into household-level public policy and investment analysis; (iii) in

another first for Belize, a destination-specific tourism expenditure survey was implemented to esti-

mate baseline tourist arrivals, expenditure and expenditure composition at destination; and (iv) the

linked CGE-microsimulation modeling framework developed here is extended and customized for

tourism-sector analysis, though this framework could be applied to public policy and investment

analysis related to most of Belize’s other important economic sectors.

The dynamic CGE model of Belize’s national economy and the multiregional model comprised

of Belize’s six regions can be used to quantify the direct and indirect, and short- and long-run

impacts of public policy proposals and investments in tourism. The national model is powerful in

its ability to evaluate the impacts of policies and investments across sectors, their impacts on gov-

ernment revenues, changes in unemployment, and distributional and welfare effects in terms of

poverty and inequality metrics. The multiregional model is amenable to destination-spe cific analy-

sis, where for instance, it could be used to estimate the impacts of building a port for cruise ships

and/or improving the road to Caracol, a world renowned Mayan archeological site. To that end,

the analyst implementing the model would need access to: (i) investment projections and (ii) an

estimate of the expected impact on gross tourist arrivals and/or tourist spending.

This paper is structured as follows. Section 2 provides an overview of the literature on tourism

as a driver of economic development, while Section 3 discusses previous CGE applications to

tourism, and presents the model and core databases. Section 4 describes the baseline and a set of

scenarios to identify the impact of investment policy decisions related to the development of

Belize’s tourism sector under different tourism demand assumptions. Our analysis focuses on

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