Using System Dynamics to analyse the Economic Impact of Tourism Multip

Using System Dynamics to analyse the Economic Impact of Tourism Multip Using System Dynamics to analyse the Economic Impact of Tourism Multipliers Abstract The importance of tourism for economic development is widely recognised . This is reflected in the great interest shown by governments by promoting foreign direct investment and freeing both public and private sector projects. Most tourism studies concentrate on analysing the economic and social effects of tourism. The impact of the multiplier has been studied widely using traditional econometric techniques. This paper focuses on analysing the economic impact of tourism revenue on the Egyptian economy. The economic theory and the mathematical modelling involved in such scenarios is discussed but the main thrust of the paper is the encapsulation of this situation by Causal Loop Models . A dynamic model, run in Powersim, is then described where important non-linear dynamical movements and the significance of systems thinking in this framework are considered . This model considers the dynamics of tourism in Egypt and its impact on GNP. 1. Introduction The importance of tourism for an economy is independent of whether it is developed or developing. . Inskeep showed that in 1989 tourism revenues world-wide were nearly 209 billion dollars growing at 9% yearly. This revenue then represented nearly 7% of total international trade and 30% of total international income. Tourism played a major role in modernising the Spanish economy. In the USA, tourism generated 5 million jobs and was 6.7% of GNP in the USA in 1989 (Inskeep, 1991). It is not only income effects that make tourism sectors important. These sectors include foreign investment, subsidies and taxation. Infrastructure and resources are considered the most important feature for any country in a competitive world fighting to attract market share. In developing and advanced countries, tourism is viewed as an important means to boost levels of income and employment. There has been much research on tourism and relationships with economic development. Thus Kraph argues that tourism has a crucial role in developing countries. It helps to lower deficits in the Balance of Payments, increase levels of economic growth and raise job opportunities (Pearce, 1992). Kasse concentrated on the benefits and costs of tourism. He showed that through a certain investment in the tourism sector, income could be produced that may be used in developing different sectors of the economy. Van Doorn concludes that development theories should take into consideration the direct and the indirect effect of tourism (Pearce, 1992). Egypt is considered to have a reasonable infrastructure and adequate resources for tourism.. It has the advantage of a unique history and climate that has preserved some of the most ancient artefacts in the world. It has a good geographical location situated between three continents with a long coasts on the Mediterranean and Red Sea.. Egypt also has a stable political and social system. This paper focuses on analysing the economic impact of tourism sector revenues on the Egyptian economy. It begins by reviewing some of the most important previous studies that discuss models of tourism multipliers . It then examines a simple Keynesian model and relates this to Egyptian data. The paper presents the results of a regression analysis that considers relative effects on GNP, consumption, investment and import expenditures. Causal and System Dynamic models are then introduced and compared with econometric results. The policy implications are then discussed. 2 The Tourism Multiplier Most studies on Tourism have concentrated on analysing the economic and social effects of tourism specially by what is termed the multiplier effect. This term is a derivative of the multiplier effect first introduced by Samuelson (Samuelson, 1960). It determines the benefit to the economy for every unit of currency that is spent. It is noted that most of the conversations about the effect of tourism on economic development concentrated on the multiplied effect of tourism on the National economy. 2.1 Traditional Approaches: Archer reflects on interrelationships between three kinds of expenditure: 1) Direct expenditure. 2) Indirect expenditure. 3) Stimulated expenditure. Indirect expenditure and stimulated expenditure are called the secondary effects of the multiplier and the sum of these are called the total effect of the multiplier (Archer, 1982). Lundberg used the following formula to calculate multiplier effects (Lundberg, 1995). MPS MPI TPI TIM + = 1 (1.1) where: TIM = The tourism multiplier TPI = The marginal propensity to import for tourists MPS = The marginal propensity to save MPI = The marginal propensity to import for local residence Using published data for the Bahamas Islands, Lundberg (Lundberg, ibid) estimated the value of tourism multiplier as: 0.894 0.737 0.659 0.281 0.456 1 0.231 = = + TIM = Ryan (Ryan, 1991) devised an alternative formula for tourism multipliers as follows: BC TIM