WHY AND HOW TO SPECIALISEIN TOURISM:
AN AGENDA FOR JAMAICA
Wolfgang Grassl
“The Role of Government in Tourism –Enhancing Human and Economic
Development”September 25-28, 2002
University of the West IndiesMona, Jamaica
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Preview
1. Introduction2. Tourism Services and Economic Growth3. Specialisation, Growth, and Country Size4. Empirical Model Estimation5. Policy and Strategy Implications for Jamaica6. The Role of Government in Tourism
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1. Introduction /1
specialisation vs. diversification W.A. Lewis: The Theory of Economic Growth
(1955) “traditional” vs. “progressive” sectors smaller countries tend to be more specialised
confronted with two facts about Caribbean: countries are, on average, very small countries increasingly specialise in tourism
• lower productivity gains part of low-growth traditional sector
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1. Introduction /2
worldwide empirical evidence: small states have comparatively higher GDP p.c. country size decreases monotonically with rising
income levels predominant sector in small and fast-growing
economies is service sector two stylised facts:
specialisation in services (particularly in personal services) is compatible with fast growth
fast-growing specialised countries tend to be small
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1. Introduction /3 theoretical issue: Baumol’s “cost disease”
comparatively lover productivity of services leads to rising price level
answer: endogenous growth theory theses:
tourism as an engine of growth for small countries
country size effects benefit small countries • “Growth requires specialization, specialization
requires co-ordination by a price mechanism, and this co-ordination is effective only in proportion to the response of individuals to changes in prices.”
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2. Tourism Services and Econ. Growth /1 incongruity: higher-income countries tend to
have larger service sectors personal services:
• production = consumption• “embodied” in consumers (= tourists)
assumption: admit only of little productivity growth does growth of service sector (particularly of
tourism) crowd out higher-productivity sectors (agriculture and manufacturing)?
can tourism maximise economic growth at all?
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Country size Number of Number of Number of Number of(population) countries countries countries countries
(Atlas method) (PPP) (Atlas method) (PPP)
< 50,000 4 5 0 050,000 - 1M 3 4 0 0
1M - 5M 2 2 3 35M - 10M 6 3 4 5
Total 15 14 7 8
Source: World Bank
20 Top Countries 20 Bottom Countries
Worldbank classification Countries Small countries % of small(popul. < 3M) countries
Low income 63 11 17.5%Lower middle income 54 21 38.9%Upper middle income 38 18 47.4%
High income 52 26 50.0%
Total 207 76 36.7%
Source: World Bank
Share of countries by size in top 20 and bottom 20 countries by GNI per capita, 2000
Share of small countries by World Bank income categories
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2. Tourism Services and Econ. Growth /2 empirical evidence (first stylised fact):
significant overlap of countries with strongest growth of GDP p.c. and countries with strongest share of tourism in GDP
Caribbean countries with strongest tourism specialisation grow fastest
allegedly negative impacts of specialisation: high leakages for imports sectoral displacement effects (“Dutch disease”) deleterious implications for culture and
environment
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Services
Manufacturing
Agriculture
Tourism
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1980 1985 1990 1995 2000
Development of sectoral shares in GDP in the Caribbean (C-29)
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Services
Manufacturing
Agriculture
Tourism
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Development of sectoral shares in GDP in Jamaica
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3. Specialisation, Growth & Country Size/1 endogenous growth theory: growth driven by
returns to increasing specialisation returns to increasing stock of human capital returns to knowledge accumulation by “learning-
by-doing” returns to knowledge accumulation by R&D and
innovation growth due to increasing specialisation
economic conditions in tourism-generating countries for tourism-receiving countries to warrant specialisation?
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3. Specialisation, Growth & Country Size/2
pivot in explanation: terms-of-trade (TOT) under complete specialisation of all countries
in either tourism or non-tourism goods, TOT:
where s = elasticity of substitution consequently,
s ( / ) ( / )
/y y y y
p pN N T T
/ /y y y yN N T T
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3. Specialisation, Growth & Country Size/3
what happens to TOT over time depends upon the extent to which non-tourism goods are substitutes for tourism
if s > 1, TOT will be muted: specialisation in tourism harmful for growth
if s < 1, specialisation not harmful for growth: TOT move fast enough to more than offset difference in sectoral productivity growth
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3. Specialisation, Growth & Country Size/4
statistical evidence for OECD countries: s < 1 fulfilled countries with a higher degree of specialisation in
tourism tend to have lower values for s• tourism services are characterised by a particularly low
degree of substitutability for non-tourism goods• reasons:
tourism goods are luxury goods (= take up less elastic shares in household budgets)
offered in bundles and in a great variety of quality levels• resource-based tourism has particularly low s
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3. Specialisation, Growth & Country Size/5
country size (second stylised fact): smaller countries have less intensive linkages but: smaller countries face lower opportunity costs
of specialisation• issue: how to measure country size• absolute vs. relative (= resource-dependent) measures
smaller countries tend to have larger amounts per capita of resources that attract tourists
• larger relative resource endowment explains specialisation
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3. Specialisation, Growth & Country Size/6 conclusions: as long as the elasticity of substitution in the
consumer preferences of tourism-generating countries is low enough, two conditions will hold: countries with endowments of suitable resources
large relative to the size of their labour force are likely to develop a comparative advantage in tourism
these countries grow faster than those specialising in other sectors
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4. Empirical Model Estimation /1
aggregate growth equation
ai = coefficients expressing contributions of sectors to aggregate growth of GDP
n = time period over which independent variables are defined
lagged by one year
ntTTntSSntMMntAAt yyyyyyyyYY )/(α)/(α)/(α)/(αα)/( 43210
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4. Empirical Model Estimation /2
three data sets: C-29: 29 Caribbean countries (islands)
• pooled cross-sectional aggregates• 1980-2000 (1986-1998 for H1)
C-5: Barbados, Dominican Republic, Haiti, Jamaica, Trinidad
Jamaica• 1980-2001
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4. Empirical Model Estimation /3
hypotheses: H1: There is a significantly positive relationship
between growth in tourism output and growth in real GDP.
H2: There is no significantly negative relationship between growth in the share of services in real GDP and growth in the shares of agriculture and manufacturing, respectively, at higher levels of specialisation in services.
H3: In small countries, the share of services in GDP will grow with country size.
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4. Empirical Model Estimation /4 H1: supported H2: supported
results somewhat less conclusive• no statistically significant displacement of agriculture
or manufacturing by expansion of service sector• decline of agriculture correlates rather with slight
increase in manufacturing and not in tourism• effect strongest for Haiti and Trinidad• at lower specialisation levels, crowding-out effects are
stronger H3: supported
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5. Policy & Strategy Implications for JA/1 Jamaica lacks comparative advantage in
agriculture manufacturing competitive only in labour-
intensive and low-skill industries specialisation in export of services which services? ICT vs. tourism
tourism specialisation: resource-based tourism low degree of substitutability product differentiation
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5. Policy & Strategy Implications for JA/2
diversification a macro-strategy of larger countries specialisation a winning strategy for smaller
countries Lewis:
• “It is not true that the individual firm must be large in scale if there is to be efficiency or economic growth; but it is true that the advantages of specialization cannot be secured unless the economies of scale are available either within the firm or within the framework of well organized markets. All the same, the degree to which the well organized market can substitute for the large firm varies very much from industry to industry.”
compensation for lacking economies of scale at industry level cooperation
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Role of Government in Tourism shift from concentration on demand-side to
supply-side policies in small states, macroeconomic policy instruments
very limited in scope trade protectionism forbids itself in open economies
government policies: stimuli for private sector to invest in education,
R&D, training, and marketing provision of public goods: safety, clean beaches,
efficient roads and airports, etc. coordinate strategic repositioning of country
