MEASURING THE ECONOMIC CONTRIBUTIONS OF TOURISM: A PROPOSAL FOR SOME BASIC INDICATORS

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators MEASURING THE ECONOMIC CONTRIBUTIONS OF TOURISM: A PROPOSAL FOR SOME BASIC INDICATORS Juan Falconí Morales 1 Abstract: This study presents a preliminary proposal for the calculation of some indicators to reveal the importance of tourism in countries economies. The aim is to quickly provide primary statistical information for those responsible for public tourism policies and for private operators, based on quantitative information, most of which comes from countries balance of payments and national accounts. The study also aims to complement to some degree the process of drawing up the Tourism Satellite Accounts (TSA) specially in those countries that have financial difficulties to implement this project The indicators given here, therefore are suggested as an initial alternative in certain cases. Index Introduction The starting-point: some aspects to consider List of indicators proposed - Basic macroeconomic equilibria - Production - Consumption and prices - Employment and wages - Investment Tables - Classification by subject and sources of information for calculation - Analytical classification and sources of information for calculation - Comparison of values for Ecuador, Panama and Malaysia Indicators proposed for the Tourism Satellite Account - Comparison of value obtained in this exercise with values obtained during preparation of the TSA for Ecuador Annex. List of indicators proposed: series drawn up for Ecuador 1 WTO consultant. The author would like to thank the WTO consultants, Ms Marion Pinot Libreros and Mr José Quevedo, for their contributions, as well as Mr Antonio Massieu, Head of the WTO Statistics Division. Their suggestions were invaluable to improve help the first version of this study. Enzo Paci Papers. Vol. 3 2003 World Tourism Organization 101

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) INTRODUCTION This study presents a preliminary proposal for the calculation of some indicators to reveal the importance of tourism in countries economies. The aim is to quickly provide primary statistical information for those responsible for public tourism policies and for private operators, based on quantitative information, most of which comes from countries balance of payments and national accounts. In practice, this set of indicators also aims to facilitate international comparability although this is subject to the restrictions described below, especially those arising from methodological differences that continue to exist in the preparation of basic statistics. These must be taken into account because of their implications for tourism and for economic and social projections. The study also aims to complement to some degree the process of drawing up the Tourism Satellite Accounts (TSA), an essential project being carried out by the World Tourism Organisation (WTO). In practice, these accounts amount to a summary of statistics that makes it possible to measure the importance of tourism in the general economy of the different countries. However, for a number of reasons, most of which stem from a lack of funding for statistical research or from limited development of the general national accounts of which they form a part, not all countries are able to draw them up. The indicators given here, therefore are suggested as an initial alternative in certain cases. In others, however, they could act as a stimulus and as preparation for more complicated tasks because examination of the initial results of such indicators might suggest that statistical systems related to tourism should be improved, thus advancing towards the ideal objective, the TSA. The latter provides a set of new information linked to the central framework and concept of the national accounts, including both monetary and non-monetary elements and variables. The set of indicators proposed, therefore, might help to rationalise statistical research in tourism and, at the same time, to promote longer-term objectives, specifically the construction of a TSA. It should be remembered that a satellite account involves a number of requirements not involved in the set of indicators, such as exhaustiveness, because (the TSA) tries to describe the set of flows and physical and financial stocks relating to the field being investigated; internal consistency in the data collected, and consistency with the central framework of national accounts in order to facilitate comparison between the satellite account aggregates and those of the national accounts. 2 The indicators suggested for measuring the economic importance of tourism are just a set of simple statistical references based on information generally available from countries balance of payments and national accounts (irrespective of their level of economic development and even, to some extent, where there is a minimal level of statistical infrastructure). They aim to provide quantitative references to tourism 2 Quoted by André Vanoli, A History of National Accounts, Paris, Reperes-La Decouverte collection, 2002, pp. 257-258. 102

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators activity, to facilitate basic international comparability and, in the future, perhaps to encourage methodological standardisation and statistical development in connection with tourism. This is, therefore, a first step towards placing tourism in the context of the various national situations and establishing a more specific approximation of its importance as a sector and in relation to the economy in general. The indicators proposed should be seen as a basic reference to be adapted to each country depending on information availability and the quality of existing data. This proposal also identifies the organisations that would be most appropriate for calculating the set of indicators because they are the ones that supply and manage the information used. This means that it would be the actual specialists within the national institutions (mainly in the National Tourism Administrations, the central statistics offices and the central banks) who could carry out this exercise. Support is thus implicit for the creation of the Inter-Institutional Platform suggested by WTO for drawing up tourism statistics and the TSA, at least if calculation of the indicators given is integrated and gives rise to regular analyses of the activity in different countries pointing to the need for setting up programmes leading to the TSA. Finally, it should be stressed that both the content of the exercise and the operating method suggested for implementing it have advantages over other possible alternatives: - by involving the specialists within the organisations mentioned, both legitimacy and credibility are ensured and this should be of great help for guiding work on improving data, the need for which is bound to appear from the analysis of results; - the cost is manageable and could even be zero if the organisations involved assign staff to it; - the indicators proposed can be drawn up fast and with ease; - both the preparation and use of the indicators might arouse interest amongst the different agents involved in tourism activity. An initial exercise has been carried out for the cases of Panama, Malaysia and Ecuador. For the latter country it was possible to draw up almost all the indicators, most of them being based on important historical series. 3 It proved to be viable in countries with both developed and less advanced statistical systems. This document forms part of a current project that WTO hopes to continue improving in coming months. Readers are therefore invited to make comments and suggestions with a view to improving and implementing the proposal. 3 See Annex. 103

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) THE STARTING-POINT: SOME ASPECTS TO CONSIDER Before proceeding to go into the detail of these indicators for calculating the economic importance of tourism, the following considerations should be made: - firstly, construction of a TSA must be seen as a process that can normally only be carried out in the medium term. This process does not give immediate results but, like any satellite account, since it both provides structure and is structured, 4 it requires in-depth reflection on its inclusion in the central framework and on its specific characteristics. This means it still needs improvement and probably adaptation to the different national situations; - secondly, WTO has compiled information on the different countries and has established contacts with professionals in the field of tourism statistics, especially through seminars and workshops. This experience has shown that in many of the most advanced countries, the level of development of the tourism statistics system is not much different to that of many developing countries. This proposal can therefore be applied to all types of situation; 5 - thirdly, as has been stated repeatedly since the TSA methodology was approved by the United Nations Statistics Commission in 2000, WTO considers it essential, from the start of TSA projects (which could involve calculation of the indicators suggested herein), that the National Tourism Administrations (NTAs) establish cooperation and coordination with other bodies that produce and use statistics. This will guarantee the necessary legitimacy and credibility of results. Also vital in this type of project is the participation of the central statistics offices which have close links with the users of statistics, of which the NTAs should be no exception. Creation of the Institutional Platforms is based on this consideration; - in line with the general guidelines drawn up by WTO regarding the contribution by NTAs to statistics and subsequent development of TSAs, the decision to draw up a TSA should involve a preliminary period of learning and maturation linked to thorough knowledge of the basic statistics to be included in the tourism account. It is absolutely true that statistics reflect the quality of the basic figures on which they are based. Too many countries have gone straight to the final summary without first considering the pertinence of their basic statistical sources or the complications involved in trying to make a tourism statistics system compatible with the requirements of the TSA. Calculation of these initial indicators suggests, for example, that no country should omit statistical research to measure inbound and outbound tourism expenditure which are absolutely essential not only for analysing tourism activity but also for improving the quality of balance of payments figures in general. 4 See the very interesting analysis made by André Vanoli, op. cit. 5 In many advanced countries, however, the development of basic statistics and of the national accounts is longestablished so the move towards the TSA should be easier. In addition, funds for statistical research are more flexible. 104

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators The aim, therefore, is to identify tourism-related economic indicators that can be obtained from establishing fairly simple links. It is not a question of defining all the indicators that would facilitate economic understanding of the activity (which can be achieved by carrying out statistical research on tourism and drawing up the TSA synthesis in the medium term), but of generating a minimum set of quantitative references on the sector based on data that is generally available, so that the public authorities and private operators can improve their understanding of the economic impact of tourism on the general economy and acquire indications on the growth of tourism activity, while the basis is established where the decision has been taken - for setting up the TSA project. This will allow better allocation of the available resources, placing priority on the tasks that are easiest to carry out and that constitute a first step towards projects of greater scope. It will also make private operators interested in using specific statistical references to plan their business, which might lead to improved planning of their activities of rationalisation and expansion. Identification of the tourism indicators proposed in this study has aimed to fulfil the minimum conditions required of this type of instrument, namely: i) they should be able to give clear answers to the main policy problems; ii) iii) iv) they should be able to measure only the phenomenon for which they were selected and they should be definitive in terms of magnitude and time; they should be close to the reality to be measured; they should be consistent and, where possible, capable of expressing the same message or conclusions to different agents in similar circumstances; v) they should be capable of measuring changes in the phenomenon being measured; vi) vii) they should be based on information that is readily available or accessible; they should be understandable; and viii) they should be appropriate from the point of view of cost. The indicators may be distributed amongst pre-set periods and should generally be accessible for the main agents involved in tourism activity. It may be that, once certain countries have their own TSA, the results indicate a different situation regarding the impact of tourism on the economy to that initially foreseen using the indicators proposed here. However, it is also possible that the new data will offer greater credibility as they will be the result of rationalisation of the basic statistical research and the application of several consistency tests applied during development of the summary statistics. 105

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) LIST OF INDICATORS PROPOSED 6 As stated above, the proposal refers to the calculation of certain indicators that should be useful for projecting a closer view of the importance of tourism and its participation in the general economy. The indicators are classified in the following groups: 1. Basic macroeconomic equilibria 2. Production 3. Consumption and prices 4. Employment and wages 5. Investment Before proceeding to describe the various indicators, it must be stressed that they are just that indicators. They offer partial information that cannot substitute conceptually precise, clearly-defined measurements. They can only offer relatively close estimates. The special feature of such indicators is that they are much easier to observe but they are not equivalent to measurements of variables or real concepts which generally require much more information and involve greater analytical complexity. Indicators may also offer different degrees of approximation to the concept being measured. For example, two approaches are made to the concept of inbound tourism consumption. The first refers to use of the travel heading credit in the balance of payments, and the second to use of the sum of the travel and passenger transport headings credit in the same balance of payments. Neither of these two indicators measures the inbound tourism consumption variable exactly. Their connection with this variable has been fully discussed in several WTO documents. For example, coverage of individuals whose expenditure is included is treated in two different ways for visitors, in the case of inbound tourism consumption, and for travellers (although this does not include all of them) in the case of the balance of payments indicator. The treatment for students in foreign countries, dependent on their families is also different. Coverage of the expenditure considered is also different, although in practice this comparability has been improved by including expenditure on international transport. Some expenses under this item, however, cannot be strictly treated as tourism activity. Several indicators can estimate a single variable with different degrees of approximation. This means that a family of indicators can make quantitative references to a single variable. In this study, once the indicator has been defined, it will be used as an approximation to the concept being measured and it is this 6 This study includes a table summarising the indicators with indication of the sources that can be used for drawing them up. 106

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators concept that will define the name of the indicator. There is, therefore, a difference between the name of the indicator defined by the variable to be estimated, and the method used to calculate it. Several methods may be suggested and used for calculating the same variable. An additional comment refers to the international comparability of such indicators. In practice, this was not an essential objective of the proposal because the quality of the indicators depends largely on the quality of the basic information on which the aggregates are built. For example, certain countries calculate the travel heading in the balance of payments with a method based on the reporting of international financial transactions by the financial sector (with or without adjustments), the quality of which will depend on the degree to which changes are monitored. In others, this is based on an annual survey of travellers (which may have different quality and methodology), or the data are extrapolated from an estimate or observation carried out in the distant past or even on data for neighbouring countries or similar. Consequently, the quality of comparison of the resulting indicators might be very limited as the data being compared come from very different origins. While this study aimed only to provide a specific country with quantitative references that would be useful for taking decisions, the hidden positive effect might be to stimulate methodological rationalisation not just restricted to the sources of tourism statistics but in general, as stated above, in the balance of payments and the national accounts. The calculation of such indicators based on information that was not drawn up especially to meet this objective might, in some cases, reveal basic inconsistencies which were not previously apparent because the different items (such as total expenditure by travellers and the number of travellers; the number of travellers and the number of overnight stays in hotels) were not linked. Such inconsistencies might give an idea as to how to set priorities in future statistical work. The proposed indicators are mostly expressed in percentages or as indices. When data from various sources are used so that the units of value used may be different, the data being compared (numerator and denominator) must first be converted to a single unit of account in order for the comparison to make sense. In some countries, this may be difficult because the balance of payments, for example, may have been established in a different unit of account from the national currency. The use of reference units of account to draw up the indicator may also lead to different values for the indicators, the relevance of which may therefore be debatable. Finally, it must be made clear that this study does not suggest the calculation of just any type of indicator. It aims to generate information that is pertinent to tourism and its importance as a sector and for the economy. 107

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) Basic macroeconomic equilibria Global macroeconomic importance of inbound and outbound tourism consumption The basic indicators adopted by the TSA for the size or economic importance of tourism are Tourism Value Added and Tourism Gross Domestic Product, defined as the value added and gross domestic product (or primary receipts measured in different ways) generated to meet domestic tourism consumption by resident producers. The main effort made by the TSA has been to establish the concept of tourism consumption so that definition and scope are completely in line with the principles of national accounts and so that Tourism Value Added and Tourism Gross Domestic Product form part of the Total Value Added (or of the Total Gross Domestic Product). They therefore consistently define the extent to which tourism participates in the generation of Value Added or GDP. This is obviously a risky approach as it requires knowledge of inbound tourism consumption, domestic tourism consumption, the production processes allowing productive activities by residents to meet this demand and the value added (and taxes) generated in these processes. However, the aim here is to take maximum advantage of the little quantitative information countries usually have on tourism consumption - basically what is included in the Balance of payments, and to draw up from it some indicators that will help to see tourism against the economy as a whole and in relation to foreign trade activities. One of the greatest limitations is that, since the indicators are based on the balance of payments, they only refer to transactions by residents within the economic territory and not by those outside it. Domestic tourism consumption is therefore excluded. In the same way, it is not possible to pass directly from visitor consumption to the value added by resident activities, so the indicator must be evaluated in terms of consumption. The travel heading under services in the balance of payments gives an idea of receipts from non-resident visitors to the country (inbound tourism consumption) and of foreign expenditure by residents (outbound tourism consumption), except for those relating to international transport. More specifically, the travel heading is the value that covers the goods and services acquired by non-resident travellers in an economy during their stay in the country being analysed (and vice versa) for business, study or personal reasons. Such travellers are not all visitors, and expenditure by certain categories of visitor is excluded. However, in the absence of specific surveys on tourism expenditure associated with inbound and outbound tourism, this value may be used as a reasonable estimate of tourism expenditure by both foreign and domestic visitors when travelling outside their country of residence. 108

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators Obviously, the quality of this approximation will depend on the weight of expenditure in relation to other visitor categories (cross-border workers, temporary workers with non-resident status, etc.). The indicators proposed aim to begin using the travel account to establish inbound tourism consumption (credit) or outbound tourism consumption (debit). This account could be complemented with expenditure on passenger transport, which is treated separately in the balance of payments. Given that passenger transport services always represent a large proportion of visitors expenditure and that there are few travellers who do not fall under the passenger transport heading in the balance of payments, their inclusion is clearly related to tourism. For this reason, when estimating overall traveller expenditure in terms of the balance of payments, both the travel and passenger transport items should be considered together. The indicators numbered 2 and 4 below would therefore give a closer approximation of the contribution of inbound and outbound tourism expenditure. Eight indicators are proposed for estimating the following four variables (two indicators each): - The share of inbound tourism consumption in GDP - The weight of outbound tourism consumption in relation to GDP 7 - The external tourism balance in relation to GDP - The rate of coverage of outbound tourism consumption by inbound tourism consumption Interpretation of the first two of these variables is clear. The third and fourth would give some idea of the extent to which gross receipts generated by tourism are covered by gross outgoings. In fact, things are more complicated than this because additional elements should be taken into account in terms of goods and services. 8 Share of inbound tourism consumption in GDP Travel (credit ) * 100 (1) GDP (Travel + Passenger transport) (credit) * 100 (2) GDP 7 The designation is slightly different because imports do not form part of the GDP as they are acquired by producers who, by definition, are non-residents and are not included in GDP. 8 See several WTO documents and proposals on this subject, especially, TSA in Depth: Analysing tourism as an economic activity, Chapter VII; and Enzo Paci, On measuring the economic significance of Tourism, Vol. 1, Tourism Balance of payments in Perspective: feasibility of WTO proposal. 109

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) Weight of outbound tourism consumption in relation to GDP Travel (debit) * 100 (3) GDP (Travel + Passenger transport) (debit) * 100 (4) GDP External tourism balance in relation to GDP Travel (credit - debit ) * 100 (5) GDP (Travel + Passenger transport) (credit - debit) * 100 (6) GDP Rate of coverage of outbound tourism consumption by inbound tourism consumption Travel (credit) * 100 (7) Travel (debit) (Travel + Passenger transport) (credit) * 100 (8) (Travel + Passenger transport) (debit) Link between inbound and outbound tourism consumption and foreign trade in goods, services and goods and services together These indicators give an approximate measurement of the relative importance of tourism consumption in relation to receipts and outgoings for the different total values for imports and exports of goods (FOB), services and goods and services taken together. They give an idea of consumption by international visitors in relation to the trade balance in goods. Link between inbound tourism consumption and exports of goods Travel (credit) * 100 (9) Total receipts from exports of goods (Travel + Passenger transport) (credit) * 100 (10) Total receipts from exports of goods 110

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators Link between outbound tourism consumption and imports of goods Travel (debit) * 100 (11) Total outgoings for imports of goods (Travel + Passenger transport) (debit) * 100 (12) Total outgoings for imports of goods In the same way, an approximate idea can be obtained of the relative importance of inbound and outbound tourism consumption with regard to services and total exports and imports of goods and services. Link between inbound tourism consumption and exports of services Travel (credit) * 100 (13) Total receipts from exports of services (Travel + Passenger transport) (credit) * 100 (14) Total receipts from exports of services Link between outbound tourism consumption and imports of services Travel (debit) * 100 (15) Total outgoings for imports of services (Travel + Passenger transport) (debit) * 100 (16) Total outgoings for imports of services Link between inbound tourism consumption and exports of goods and services Travel (credit) * 100 (17) Total receipts for exports of goods and services (Travel + Passenger transport) (credit) * 100 (18) Total receipts for exports of goods and services Link between outbound tourism consumption and imports of goods and services Travel (debit) * 100 (19) Total outgoings for imports of goods and services (Travel + Passenger transport) (debit) * 100 (20) Total outgoings for imports of goods and services 111

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) Regarding exports of goods and services, indicators can be drawn up to allocate tourism receipts to specific categories of goods exported. Where used, these indicators will stress the importance of tourism expenditure in comparison with key products or product groups which were traditionally the basic external resources for a specific economy. Each country can select appropriate categories, preferably those it usually uses when presenting and analysing its foreign trade. Again, with these indicators the two versions of estimates for inbound tourism consumption can be used. Link between inbound tourism consumption and the main exports of goods a) Exports of primary products Travel (credit) * 100 (21) Total receipts for exports of primary products (Travel + Passenger transport) (credit) * 100 (22) Total receipts for exports of primary products b) Exports of industrialised goods Travel (credit) * 100 (23) Total receipts for exports of industrialised goods (Travel + Passenger transport) (credit) * 100 (24) Total receipts for exports of industrialised goods c) The main export products Travel (credit) * 100 (25) Total receipts for exports of product (Travel + Passenger transport) (credit) * 100 (26) Total receipts for exports of product Furthermore, in order to find out the relative importance of tourism receipts in comparison with receipts generated by the main exports for each country, a historical series can be generated (between 5 and 10 years) in order to set up a ranking for the importance and growth of tourism as a source of external resources for an economy. Obviously, in order to make such a comparison, a standard method of valuation must be used for all the elements used. 112

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators d) In terms of ranking Position occupied by Travel (credit) in relation to a country s main exports (27) Position occupied by Travel + Passenger transport (credit) in relation to a country s main exports (28) A similar proposal could be made by relating tourism receipts with the main imports in a specific economy classified by economic group. This would give rise to indicators 27b and 28b which are not given here. Share of tourism tax revenue in total revenue from the non-finance public sector (NFPS) An important concern for analysts is the contribution made by tourism to the accounts of the non-finance public sector. It is difficult give a direct response to this concern as it would require a study of the production that is directly consumed by visitors. But this is one of the objectives of a TSA so it could be evaluated from TSA indicators. However, it is possible to draw up approximate indicators mainly on tourism characteristic products and activities, which might throw light on this important aspect. Most countries have devised specific taxes for tourism characteristic products and activities, such as: tax on traveller departures (different to airport taxes, which are equivalent to the purchase of a service); tax on air travel tickets; hotel tax; VAT on hotel services, restaurants, travel agents, etc. Others. The sum of revenue from these taxes could be used as an approximation for tourism tax revenue. Sum of tax revenue from characteristic activities * 100 (29) Total revenue from non-finance public sector 113

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) Link between inbound tourism consumption receipts and receipts from emigrants remittances For developing economies especially, receipts in the form of remittances sent home by emigrants amount to a large component of the Current Account (current transfers), so it might be relevant to link these receipts with those from inbound tourism consumption. Travel (credit) * 100 (30) Emigrants remittances (Travel + Passenger transport) (credit) * 100 (31) Emigrants remittances Production Many countries carry out constant follow-up of their productive activities, combining censuses or thorough surveys every 5 to 10 years with annual surveys and other, even more frequent procedures. Although these procedures were initially set up for the industrial sector, many countries now carry out systematic observation of service activities. Because of the great variety of services, while some countries carry out general surveys for all of them, others have drawn up special surveys or modules within the general method, in order to find out the specific characteristics of each activity and thus associate variables, especially non-monetary variables, that can be used to describe each of the activities under study. It is from this type of source that information can be taken, especially on tourism characteristic activities as defined in the TSA methodology (12 main activities). In many cases, these will not be indicators as defined so far but actual variables expressed in terms of value added (or GDP). If it is not possible to estimate the variables for the characteristic activities because the available statistics are too general, then approximations can be reached by using, for example, the results of aggregated activities. Basically, the indicators (or estimates) must be related to the value added (or GDP generated) for the characteristic activities expressed in absolute value. Alternatively, they can be expressed as a percentage of the value added or of total GDP and any additional, non-monetary indicator collected (such as number of beds, number of hotel rooms either available or used) will support the estimate GDP or VA (Σ activities ) * 100 (32) GDP or total VA 114

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators In view of the wide variety of possible national situations, no further precise recommendations are made here. Each country will have to try to use its statistics on service activities as best it can. Consumption and prices The indicators in this category aim to compare inbound tourism consumption trends with actual consumption in resident homes. Although not all the elements are available for understanding why the two evolve differently, some indicators can be generated to explain such differences and especially to explain to some extent the effect of prices. Consumption An initial indicator allows estimation of the relative importance of tourism consumption with regard to actual consumption in the homes of a specific country. In some countries in which tourism is important, relatively high proportions may be observed which show how visitor consumption its structure, preferences and price levels will significantly affect consumption by product. Trends may tie in with variations in both the actual level (evolution in consumption per capita or per day/person and the number of people) and in changes in the price level implicit in each of the two aggregates. Weight of tourism consumption in actual total consumption If there is no information on domestic tourism consumption, an estimate based on inbound tourism can be used as an indicator. However, any error might be marked because in many countries domestic tourism consumption is much greater than inbound tourism consumption or represents a large proportion of the total (in France, 60% of total tourism consumption corresponds to domestic tourism; in Switzerland, the proportion is 45%, etc.). As in the above cases, two calculations are possible, with or without the adjustment for international transport. Travel (credit) * 100 (33) Actual final consumption in resident homes (Travel + Passenger transport ) (credit) * 100 (34) Actual final consumption in resident homes 115

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) In order to gain an approximate idea of changes in price levels for tourism consumption, which might to some extent explain the aggregates, a set of indicators has been drawn up to ascertain the rate at which prices implicit in tourism consumption increase in comparison with other sectors in the economy. Trends in prices implicit in tourism consumption Tourism consumption covers a great variety of goods and services. To calculate the implicit price index requires detailed knowledge of levels and structure which is not possible in this case. However, it is possible to follow the prices of certain tourism characteristic products which, by definition, are usually more important for visitors than for non-tourists. Specifically, the annual percentage change in the Consumer Price Index (CPI) under the category of Hotels, Cafeterias and Restaurants can be related to the annual percentage change in CPI. This allows us to determine whether price changes in this segment, which is relevant for tourism activity, increase more (with an indicator above 1) or less (indicator below 1) than the rest of the economy. 9 Other similar indicators can also be established if the information is available. For example, instead of using the global indicator for Hotels, Cafeterias and Restaurants, a global product in which non-tourism consumption is also important, the specific indicator for hotels or for collective accommodation services in general can be used, if available. In the same way, if we know the weight of the transport heading under tourism consumption, it may be possible to also establish indicators for price changes in different types of passenger transport, such as international air transport, the national airline or long-distance rail or bus transport. These indicators can be calculated as follows: Group of products" (annual change in %) (35) General CPI index (annual variation in %) The advantage of this type of indicator is that it can be considered an estimator of the level of internal competitiveness in the corresponding characteristic activity. If its prices reflect growth that is less than proportional to the general level in the economy, it can be said that the adjustment on a general level is not completely transmitted to the activity. This may reflect greater competitiveness or improved productivity in the industries involved. 9 This index should refer exclusively, where feasible, to urban areas. 116

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators Link between tourism consumption and non-monetary variables Tourism consumption is associated with specific individuals who travel under certain conditions. Therefore, tourism consumption of all types should be linked to non-monetary variables that characterise visitors and travel by them, and it is these visitors and the characteristics of their movements that explain tourism consumption. It is therefore important to try to suggest indicators associated with the total value of tourism consumption and with other variables related to visitors in order to offer explanations for tourism consumption, its causes and behaviour. Usually, NTAs carry out a degree of control on the flows of travellers into or out of their countries and try to establish some of the characteristics of such flows. The following family of indicators aims to relate the variables generated by border control of arrivals and departures and others, such as the duration of stay, with the value of inbound consumption estimated from the balance of payments. Inbound and outbound tourism consumption per capita A first family of indicators could be established by relating the number of visitors with inbound tourism reception in order to estimate consumption per capita and evaluate trends over time. In this case, since the result is a monetary value, a monetary unit should be selected and this will depend on the use to be assigned to the indicator: a unit of account in the balance of payments for the purpose of international comparison or for measuring impact on the balance of payments, or the local monetary unit for determining its impact on the rest of the economy. With regard to the numerator, the two options considered throughout this proposal are maintained: the travel account (credit) or the travel + passenger transport accounts (credit) in the balance of payments. With regard to the denominator, the number of people from which the average is taken, there are several options and these depend on the statistical information available and on the relevance of the differences between the various groups considered (difference between travellers and visitors, or between tourists and visitors). For determining the importance of their consumption, all travellers, all visitors or only tourists can be taken. Obviously, when the reference populations are reduced, average consumption will increase. (Information on traveller movements will determine which are most relevant for analysis). Similar indicators can be established in the case of outbound tourism although these will possibly be of less analytical interest. 117

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) The indicators suggested in this section are: Travel (credit) (36) Non-resident travellers or non-residents visitors or incoming non-resident travellers (Travel + Passenger transport) (credit) (37) Non-resident travellers or non-residents visitors or incoming non-resident travellers Travel (debit) (38) Resident travellers or resident visitors or outgoing resident travellers (Travel + Passenger transport) (debit) (39) Resident travellers or resident visitors or outgoing resident travellers Inbound and outbound tourism consumption per day A crucial variable for explaining per capita consumption is obviously duration of stay by the visitor in the place visited. While many fixed costs are included in visitor consumption (particularly the costs of travelling to the place visited), many of the other tourism expenses will depend on the duration of stay. Many NTAs monitor the duration of stay for non-resident visitors to their countries and the duration of absence of resident visitors. Where this information exists, it may be of interest to try to establish not so much an estimate of consumption per capita but of consumption per capita per day. In this case, too, the various options suggested above may apply: The indicators would therefore be as follows: Travel (credit) (40) Overnight stays by (non-resident travellers or non-resident visitors or incoming non-resident travellers (Travel + Passenger transport) (credit) (41) Overnight stays by (non-resident travellers or non-resident visitors or outgoing non-resident travellers Travel (debit) (42) Overnight stays by (resident travellers or resident visitors or incoming resident travellers (Travel + Passenger transport) (debit) (43) Overnight stays by (resident travellers or resident visitors or outgoing non-resident travellers 118

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators Other indicators related to traveller movements Border movements also allow for other indicators to be drawn up which are more related to tourism pressure exerted by tourism flows within the territory. Some countries or regions find their population multiplied by seasonal tourism flows. It is particularly important to identify this pressure because it multiples demand on basic infrastructure electricity, cleaning, water supply, roads and even on trade and nontourism activities. Initially, such indicators can be established globally, but it is possible for countries to monitor this variable on a monthly basis, especially when it involves large figures. Obviously, there may be changes in the form of indicators, taking into account possible difference in reference traveller populations, and it may also be possible to establish monthly indicators. Non-resident visitor arrivals * 100 (44) Total population Resident visitor departures * 100 (45) Total population Trends in inbound and outbound tourism consumption This set of indicators, expressed in terms of annual rates of growth, allows an approximation of trends over time in levels of tourism consumption for both inbound and outbound tourism. Again, depending on the individual case, the figures will be taken from the credit or debit items under the travel and passenger transport headings in the balance of payments. (Travel) (credit) t (Travel) (credit) t -1 * 100 (46) (Travel) (credit) t -1 (Travel + Passenger transport) (credit) t (Travel + Passenger transport) (credit) t -1 * 100 (47) (Travel + passenger transport) (credit) t -1 (Travel) (debit) t (Travel) (debit) t -1 * 100 (48) (Travel) (debit) t -1 (Travel + Passenger transport) (debit) t (Travel + Passenger transport) (debit) t -1 * 100 (49) (Travel + passenger transport) (debit) t -1 119

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) Employment and wages National accounts usually include annual figures for employment and wages that are calculated for activities at a level of detail at least sufficient for publication. However, there is not usually complete coverage of these variables for each of the 12 main tourism industries identified in the TSA. The search for indicators encourages countries to evaluate aggregate activities. For example, for hotels and restaurants, it is possible to identify figures for employed persons globally and / or by working categories, and their remuneration. Certain countries may also monitor hourly wage rates within this category. As a minimum, there are usually figures for persons employed by the Hotels and Restaurants sector with their respective wages. Persons employed in activity * 100 (50) Total employed persons nationally Remuneration paid for activity * 100 (51) Total remuneration paid nationally Hourly wage rate in activity * 100 (52) Total average hourly rate Investment Gross Fixed Capital Formation (GFCF) is important for evaluating changes in an activity. Without GFCF, there can be no renovation or expansion of production infrastructure nor development of the activity. It is therefore important to have some indication of such trends. Tourism GFCF has two parts: firstly, gross fixed capital formation for all production activities in certain specific goods identified as tourism capital goods; secondly, total gross fixed capital formation for tourism activities, remembering that part of this has already been considered under tourism capital goods. Taking the above-mentioned aspects, two types of indicator can be drawn up one based on tourism capital goods and another on tourism activities. Estimation of tourism capital goods Although the TSA does not give a classified list of the capital goods that should be considered as related to tourism, some of these can be identified as follows: construction of hotels, restaurants and any type of accommodation, including private holiday residences; 120

Measuring the Economic Impact of Tourism: A Proposal for some Basic Indicators improvement of land and infrastructure for the development of tourism areas; fittings for hotels and restaurants; the purchase (or leasing) of aircraft for passenger transport; the purchase of tourism recreational craft; the purchase of specially equipped coaches for excursions (with panoramic windows, etc.). Breakdown by product of the GFCF in national accounts, especially in construction and imports of transport equipment, should provide elements for tentative estimation of tourism capital formation. Σ GFCF in tourism capital goods * 100 (53) Total GFCF Estimation of gross fixed capital formation in characteristic activities In order to gain a rapid approximation to the level of investment in the sector, two important indicators can be estimated. 10 Firstly, the rate of growth in the total number of tourism activity establishments and, secondly, participation by the GFCF in characteristic activities taken either globally or separately within total GFCF for the economy. Clearly, the indicator for the number of establishments should be taken with great care, because tourism establishments are characterised by enormous variability in size. In many countries, most establishments are small, or very small, but most of the employment and value added are generated in large and very large establishments. A change in the number of establishments may, therefore, have little connection with net capital formation in the characteristic activities. Number of establishments t Number of establishments t 1 * 100 (54) Number of establishments t 1 GFCF (activity ) * 100 (55) Total GFCF 10 Taking the CIIU, the economic activities included in this calculation are: 5510, 5520, 9211, 9212, 9213, 9214, 9219, 9241 and 9249. 121

Enzo Paci Papers on Measuring the Economic Significance of Tourism (Volume 3) TABLES Classification by subject and sources of information for calculation Classification Indicator Balance of payments Foreign trade GDP National Accounts Price and wages Public finance statistics National Tourism Administration Central Statistics Office Share of inbound tourism consumption in GDP: (1), (2) Weight of outbound tourism consumption in relation to GDP: (3), (4) External tourism balance in relation to GDP: (5), (6) Rate of coverage of outbound tourism consumption by inbound tourism consumption: (7), (8) Link between inbound tourism consumption and exports of goods: (9), (10) Link between outbound tourism consumption and imports of goods: (11), (12) Link between inbound tourism consumption and export of services: (13), (14) Link between outbound tourism consumption and imports of services: (15), (16) A.1. Basic macroeconomic equilibria Link between inbound tourism consumption and exports of goods and services: (17), (18) Link between outbound tourism consumption and imports of goods and services: (19), (20) Link between inbound tourism consumption and the exports of primary products: (21), (22) Link between inbound tourism consumption and the exports of industrialised goods: (23), (24) Link between inbound tourism and the main export products: (25), (26) Ranking of the inbound tourism consumption within the main exports of products: (27), (28) Share of tourism tax revenue in total revenue from the non-finance public sector (NFPS): (29) Link between inbound tourism consumption receipts and receipts from emigrants remittances: (30), (31) A.2. Production A.3. Consumption and prices Link between GDP or VA for tourism activities and GDP or total VA: (32) Weight of tourism consumption in actual total consumption: (33), (34) Trends in prices implicit in tourism consumption: (35) Inbound and outbound tourism consumption per capita: (36), (37), (38), (39) Inbound and outbound tourism consumption per day: (40), (41), (42), (43) Tourism pressure: (44), (45) Trends in inbound and outbound tourism consumption: (46), (47), (48), (49) Employment indicator: (50) A.4. Employment and wages Remuneration paid indicator: (51) Hourly wage indicator: (52) A.5. Investment Investment of tourism capital goods: (53) Investment of tourism industries: (54), (55) 122