Department of Economics

Faculty of Economic and Management Sciences

Tourism from a trade perspective: the

sources of comparative advantage

and its implications for South Africa

and the regionJohan Fouriejohanf@sun.ac.za

TIPSJohannesburgJuly 24, 2009

Introduction

• Travel services one of the fastest growing export sectors in the world economy

• Africa is the fastest growing region since 2000• 5.7% in 2008, compared to 3% annually

• Growth not only in leading markets (Egypt, Morocco, South Africa and Tunisia)• Botswana, Cape Verde, Ethiopia, Ghana,

Libya, Mali, Niger, Rwanda, Sudan and Uganda

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Service exports – growth and composition

Service sector Obs Exports(US$)

% of exports Country average(US$)

% of country average

Transport 146 561980.2 23% 3849.179 21%

Travel 147 675373.6 28% 4594.378 24%

Communications 127 57439.2 2% 452.2772 2%

Construction 88 49485.8 2% 562.3386 3%

Insurance 130 49733.8 2% 382.5677 2%

Financial services 105 163505.4 7% 1557.194 8%

Computer and information 101 108259.1 4% 1071.872 6%

Royalties and licence fees 91 129057.1 5% 1418.21 8%

Other business services 136 619259.9 25% 4553.382 24%

Personal, cultural and recreational 91 29641.3 1% 325.7286 2%

Total services 2443735 18767.13

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Region 1980–2006

1992–2006

2000–2006

Developing economies: Africa 6.46 7.59 12.84

Developing economies: America 6.57 7.17 7.62

Developing economies: Asia 10.28 10.71 12.73

Developing economies: Oceania 6.27 3.19 7.31

Developed economies: America 8.67 6.57 6.05

Developed economies: Asia 7.10 6.73 8.37

Developed economies: Europe 7.17 7.16 11.71

Developed economies: Oceania 8.53 8.05 9.08

Economies in transition: Asia – 24.48 17.31

Economies in transition: Europe – 12.89 20.24

Service exports in South Africa

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NRCA of service exports in SA

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Tourist arrivals in Egypt, Morocco, South Africa and Tunisia, 1980-2005

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Theoretical background and hypothesis

• Trade theories (neoclassical and new) based on supply-side factors• Comparative advantage, Heckscher-Ohlin,

imperfect competition, intra-industry trade

• Tourism modeling (and forecasting) based on demand-side factors• Linder (1961), Lim (1997)• For (South) Africa: Naudé and Saayman

(2005), Saayman and Saayman (2008)

• Which countries have a comparative advantage in travel service exports? Why?

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Methodology and data

• Revealed comparative advantage• Balassa (1965) index

• < 1, no revealed comparative advantage• > 1, revealed comparative advantage

• Yu, Cai and Leung (2009) index

• < 0, no revealed comparative advantage• > 0, revealed comparative advantage

• UNCTAD Handbook of Statistics 2007• 147 countries in 2005

• Africa: 36 countries with 2004/2005 data, 17 with older

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The world

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SOURCE: Du Toit and Fourie (2009)

Countries with strong NRCA

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SOURCE: UNCTAD (2007), own calculations

Rank Country Code CA NRCA1 USA USA Very strong 0.00261022 Spain ESP Very strong 0.00256923 Turkey TUR Very strong 0.00102124 France FRA Very strong 0.00100835 Greece GRC Strong 0.00084056 Italy ITA Strong 0.00083427 Australia AUS Strong 0.00075648 China, Macao SAR MAC Strong 0.00058619 Croatia HRV Strong 0.0005053

10 Austria AUT Strong 0.000474611 Egypt EGY Strong 0.00043612 Lebanon LBN Strong 0.000382813 Portugal PRT Strong 0.00038214 South Africa ZAF Strong 0.000315115 Morocco MAR Strong 0.000286516 New Zealand NZL Strong 0.000258917 Dominican Republic DOM Strong 0.000236418 Thailand THA Strong 0.000205619 Bahamas BHS Strong 0.000151420 Cyprus CYP Strong 0.000150821 Switzerland CHE Strong 0.00014222 Syrian Arab Republic SYR Strong 0.000131423 Bulgaria BGR Strong 0.000122724 Tunisia TUN Strong 0.000106925 Jamaica JAM Strong 0.0001063

• Can these be regarded as our main competitors?• Yes and no.

Africa

• North African countries• Island economies• Longitudinal band, SA to

Ethiopia• Latitudinal band, Sahel

countries• Other countries• Limitations

• Data queries

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SOURCE: Fourie (2009b)

The determinants of comparative advantage - Africa

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Reg1 Reg2 Reg3 Reg4 Reg5 Reg6 Reg7 Reg8 Reg9 Reg10 Reg11C 0.0215 0.0015 -0.0572 -0.1518 ** -0.2670 ** -0.3315 ** -0.1558 ** -0.2446 *** -0.4508 ** -0.3024 ** -0.4424GCF -0.0043 ** -0.0041 ** -0.0040 ** -0.0074 ** -0.0102 *** -0.0113 *** -0.0091 *** -0.0092 *** -0.0084 *** -0.0100 *** -0.0087 **POP 0.0001 0.0002 0.0001 0.0000 0.0005 -0.0008 0.0008 0.0007 0.0003 0.0007 -0.0005NCR 0.0133 ** 0.0111 *CUL 0.0924 * 0.0998 ** 0.1109 ** 0.0662 0.0946 ** 0.1155 *** 0.0930 ** 0.1048 *FOR 0.0027 *** 0.0027 *** 0.0025 ** 0.0036 *** 0.0021 *** 0.0028 *** 0.0022 *** 0.0021 *** 0.0021 *** 0.0021 *** 0.0025 ***CST 0.0000 * 0.0000 * 0.0000 **IMM 0.0020 * -0.0086 ** -0.0089 **

INT -0.0077 ** 0.0025 ** 0.0038 *** -0.0133 **CIV -0.0138 ** -0.0134 **TRN 0.0006 0.0010 **AIR 0.0541POL 0.0500 **PRC 0.0568 0.0397TOU 0.0594 ** 0.0303PRIO 0.0410 *

AFF 0.0706 * 0.0703REG 0.0599 * -0.0566

Obs 50 50 50 29 29 29 29 29 29 29 29R2 0.57 0.59 0.50 0.74 0.65 0.64 0.67 0.68 0.68 0.65 0.70

The determinants of comparative advantage

• Preliminary evidence1. Seems that travel service exports is natural

resource intensive (not labour, capital), especially in Africa• POLICY: Protection of natural and cultural resources critical

• Game reserves, monuments, etc…

• POLICY: Extend natural/cultural resources - build more monuments, for example…

2. Prioritization of tourism• POLICY: Increase government spending – attend fairs, marketing, etc.

3. Tourism infrastructure• POLICY: Liberalise further, transport

4. Local demand important• POLICY: Encourage domestic travel, tourism

5. Regionalisation/agglomoration• POLICY: Make travel across borders easier – agglomeration

economies13

Liberalisation of travel services

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SOURCE: Fourie (2009). The help of Paul Kruger, tralac is gratefully acknowledged.

• Can we liberalise further?

Future work

• With Paul Kruger – the liberalisation of travel service exports for the southern African region

• With Devon Trew – The determinants of South Africa’s comparative advantage in goods and services since 1980

• With Emile du Plessis – South Africa’s comparative advantage in education service exports

• With Rachel Jafta – the determinants of ICT service exports

• With Krige Siebrits, Karly Spronk – was there displacement of tourists in the Lions tour/Confed Cup – using the IPL as natural experiment

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Thank you. Questions, comments?

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JOHAN FOURIEjohanf@sun.ac.za