Tourism multipliers in the Maltese economy

Abstract

This chapter estimates tourism multiplier effects in the Maltese economy using a Keynesian expenditure macro-model and an input-output model. The basic difference between the two models is that the latter contains disaggregated information about intersectoral relations, whereas the former does not. At an aggregate level, however, they should produce similar results. A review of the literature on tourism multipliers is given in Archer (1977) for work published before 1977. A more recent review is given in Fletcher (1989). Some individual country tourism multiplier studies are Archer and Wanhill (1981) for Mauritius; Norton (1982) for Ireland; Lin and Sung (1983) for Hong Kong; Fletcher (1985) for Jamaica; Curry (1986) for Tanzania; and Liu (1986) for Hawaii. The aim of the present chapter is to extend the discussion by providing multiplier estimates for the Maltese economy. This is not the first time that tourism multipliers have been estimated for the Maltese economy. Waldorf (1969) provided estimates through a simple Keynesian expenditure model. The estimates produced were very crude in that domestic consumption and tourist consumption were assigned a single import propensity and the tourism multipliers so derived were the same as those for autonomous domestic consumption. Moreover, transportation expenditure by tourists was not considered in the computation of the tourism multipliers. A more recent study is that by Howarth & Howarth ( 1989). This study had a number of shortcomings. In particular, it produced a 'hybrid' input-output model where the non-tourist sectors were represented in a single row and column. Moreover, because of data limitations, Howarth & Howarth had to base their results on tourism data that did not pertain to the Maltese economy, but were collected from other European and Mediterranean countries (Howarth & Howarth, 1989, p.139). A very useful study is the report by PA Cambridge Consultants, written by Tarling and Rhodes (1990). The report presents survey data on the Maltese value-added content of tourist expenditures, including transportation. These results will be referred to in the present study in connection with the creation of a tourism row and column in the Maltese input-output tables. To compute tourism multipliers, Tarling and Rhodes first utilized a step by step method for ·calculating the inter-industry impact of tourist expenditure. They then constructed an aggregate expenditure model to calculate the induced income effect. This method is somewhat unorthodox in that it produces tourist income multiplier magnitudes that are not estimated simultaneously with the inter-industry effects. The input-output model presented in this chapter is based on the widely used Leontief inversion method. This method combines, and simultaneously estimates, the direct, indirect and induced income effects of tourist expenditure. An expenditure macro-model has also been used to estimate tourism income multipliers, for two reasons. Firstly, this method yields rough aggregate estimates, which may be compared to the more disaggregated results of the input-output model. Secondly, it helps the reader to understand the multiplier relationships that underlie the induced effects of the input-output model. This chapter is divided into six parts. Following this introductory section, a brief summary of the tourist industry in Malta is given in Section 5.2. In Section 5.3, the results obtained from the expenditure macro-model are presented. The fourth section gives multiplier estimates derived from the input-output model. Section 5.5 discusses some implications and shortcomings of multiplier models, while Section 5.6 gives a summary of the main conclusions.