Estimating total contribution of tourism to Malaysian economy

Transcription

1 MultiCraft International Journal of Business, Management and Social Sciences Vol. 2, No. 3, 2011, pp INTERNATIONAL JOURNAL OF BUSINESS, MANAGEMENT AND SOCIAL SCIENCES MultiCraft Limited. All rights reserved Estimating total contribution of tourism to Malaysian economy Mohammad Nurul Huda Mazumder 1 *, Elsadig Musa Ahmed 2, Md. Abdur Raquib 3 1* Faculty of Management, Multimedia University, Cyberjaya 63100, Selangor, MALAYSIA 2,3 Faculties of Business and Law, Multimedia University, Melaka 75450, MALAYSIA * Corresponding Author: hudametro@yahoo.co.uk, Tel , Fax Abstract The main objective of this study was to estimate the total contribution of tourism to Malaysian economy in the generation of output and income. The above objective was taken to fill the research gap of available literatures which estimated only the direct and indirect impact of tourism using partial input-output analysis. Input-output, the predominant model, was employed to estimate the total economic impact of tourism. The findings of this study revealed that tourism receipts were not only contributing to the generation of output and income of direct tourism related sectors but also to the generation of significant output and income impact of other productive sectors of the economy through indirect and induced impact. The study findings suggest that when preparing economic policies using multipliers, they should be made with caution as coefficient of multipliers varies among sectors. The variation in multipliers could be minimized by reducing import dependency of tourism sectors which, in fact, would increase the value of multipliers of tourism related sectors as well as other closely related productive sectors of Malaysian economy. Keywords: tourism; economic impact; input-output model; output; and income. 1. Introduction The ability to generate ripple effects by tourism makes it a performer of vital medium of foreign currency injection which has been drawing a significant attention for the economic development of developing countries. Developing economies are progressively relying on income streams from tourism while the traditional economic sectors have become less potential in contributing to GDP. The economic repercussions of tourism are occurring in extensive latitude, within the evolution of the globalization process (Sugiyarto et al., 2003) that is, in turn, helping the acceleration of this industry s expansion around the globe. In fact, direct, indirect, and induced multiplier effects are the causes that assist in expanding the contribution of tourism to an economy. Therefore, along with direct impacts, the measurement of indirect and induced impacts of tourist expenditure has to be taken into consideration as they represent a better measure (Archer, 1982; Fletcher, 1989a; Vaughan et al., 2000) that completes the total economic impact of tourism. As repercussion effects of tourism are being realized by nations, it is now believed to stimulate the economic progress of developing economies and its importance in gaining widespread recognition, as such, Malaysia is no exception. With the immense growth of tourism, Malaysia has become one of the leading tourist destinations competing with other popular destinations of the global economy. Similar to many developing nations, tourism industry has become one of the most vital sectors, drivers and/or engines of growth and development for Malaysian economy because of its competitive advantages and potentiality. The tourism industry not only creates considerable high multiplier effects but also enhances the inter-sectoral linkages in the economy. Through intersectoral linkages, impact of international tourist expenditure affects almost all sectors of an economy beside direct tourism related sectors.(mazumder et al., 2011). A full extent of realizing the potential economic contribution of tourism can only be achieved by appropriately estimating the total contribution of tourism. This could be obtained by deriving multipliers of the Malaysian economy that would, in turn, assist policy makers in formulating appropriate future planning and policies.

2 30 2. Literature Review Existing information available in the literature is found to be limited in explaining its contribution or total economic impact to Malaysian economy. Facing similar problem or issue, Vaughan et al. (2000) asserted that this industry s contribution is not satisfactorily acknowledged since existing data is insufficient to explain its actual contribution. This sector cannot be regarded as an isolated economic activity (Yan and Wall, 2002), although, at the time of this study, Malaysian national accounts did not specifically define tourism as a single industry. An economy s existing statistics in the balance of payments current account only provides partial picture of the true impact of tourism to an economy because it does not provide any reference of indirect and induced effect of tourism (Heng and Low, 1990). Therefore, there is a need to better understand tourism industry s relative contribution to Malaysian economy by conducting an economic impact analysis using input-output modelling framework. The studies of Rashid et al. (1993) and Rashid and Bashir (2004) attempted to estimate the contribution of tourism to Malaysian economy using partial input-output analysis. The partial analysis only captures the direct and indirect multiplier impact of tourism. Therefore, this actually created a gap in existing literature which did not take into account the induced impact of tourism. The importance of induced impact is quite considerable (Archer, 1976a, 1976b) as the expenditure generated as a result of wage income may also generate a significant economic impact through household consumption (Wagner, 1997) generally captured by induced multipliers. Without estimating induced multipliers, previous studies have underestimated the total impact of tourism to Malaysian economy. Therefore, the objective of this study was to fill the above literature gap by estimating the total contribution of tourism through deriving total multipliers and analyzing the contribution of tourism to the economy in terms of output and income generation. 3. Methodology To estimate the direct, indirect and induced impact of tourist expenditure, one needs to perform multiplier analysis 1 which can be considered as the fundamental tool to estimate the total impact of tourism on an economy. And, input-output is the predominant model utilized by researchers to capture the total impact of tourism to estimate the multipliers (Fletcher, 1989; Yan and Wall, 2002, Kweka et al., 2003; Contini et al., 2009). The model describes an economy through a system of linear equation, reflecting a general equilibrium approach, where the total output produced by one productive sector is either utilized by other productive sectors as intermediate input (sometimes internally by the productive sector itself) and the final demand sector. The final demand sectors in input-output table for the year 2000 consisted of five sub-sectors including private consumption, government consumption, changes in inventory, gross fixed capital formation, and exports. Assuming an economy with a producing sector and final demand sector, the output of sector i can be written in equation form as: n X i = x ij +(F i - M i ). (1) j=1 Where, X i is the vector of gross output of sector i; Xij is the vector of output of sector i sold to sector j; F denotes the final demand vector; and M denotes imports 2, If x ij = a ij X j or AX Where, a ij X j. is the total value of purchases of goods and services by sector j from sector i which has been known as technical coefficients. Therefore, the equation (1) can be written as: X = AX+ (F-M) (2) Solving the Equation (2) it can be found as: X = (I A) -1 (F-M) (3) In Equation (3), X is the vector of output; I denotes identity matrix and [I - A] -1 is the total requirement matrix or mostly known as open Leontief inverse multiplier matrix that measures the direct and indirect impact of any change in final demand. The final demand considered for this study is the amount of international tourist expenditure or inbound tourism receipts for the year When household sector is considered as endogenous to the model [I - A] -1 that captures multipliers on three distinct directions such as the direct, indirect, and induced effect of a unit change in final demand due to an injection of international tourist expenditure. International tourist expenditure or receipts are the amount of money that foreign tourists spent in tourism related activities during their visit. When international tourists spent their money into tourism related sectors, the injection of money creates direct impact in the economy. Though direct impact of international tourist expenditure occurs within tourism related establishments, the measurement of direct impact provides incomplete picture of the precise contribution made by tourism (Mazumder et al., 2011). Through intersectoral linkages, indirect and induced impact of international tourist expenditure affects almost all sectors of an economy. The indirect impact occurs due to intersectoral linkages of tourism with other sectors of the economy. In addition, induced or consumption induced impact is the result of when the employees or entrepreneurs direct and indirect tourism related establishments earnings, such as salaries, wages, rents, profits, and dividends are being spent to make purchases in local economy. 1 The multiplier analysis represents the change in economic activity that has an effect on the whole economy resulted from some originated change in the economy and their underneath relationships (Miller and Blair, 1985). 2 Imports are considered as leakages. Therefore, without deducting imports, impacts of tourism will be significantly overstated (Henry and Deane 1997)

3 31 This process generates additional economic impact. To get an overview of international tourist expenditure and their effects in three distinct direction direct, indirect, and induced effect, a reference can be made to Mazumder et al. (2011). The basic requirement of an input-output model is the data from input-output table prepared by department of statistics, Malaysia for the year 2000 published in 2005 was employed in this study. As a data hungry model (Briassoulis, 1991), it is usual to have time-lag in assembling and publishing the table as a result of its complex nature (Yan & Wall, 2002) which is very frequent in impact studies employed data from input-output table. Besides, the data on the amount of international tourist arrivals and receipts/expenditure were collected from Malaysia Tourism Promotion Board (MTPB). 4. Results and Discussion The results obtained from input-output analysis are presented in this section and in table 1. The multipliers were estimated for aggregated 52 sectors of Malaysian economy which were then multiplied by the amount of international tourism receipts (RM36.2 billion) obtained in 2006 to estimate the total contribution of tourism in the generation of output, and income. The output multiplier measures the overall increase in output or sales in the economy due to a unit increase in final demand. As represented in table 1, the output multipliers range from the highest value of attributed by education sector to the lowest value of for crude, petrol and natural gas sector with economy s sectoral average output multiplier of Service or tertiary sectors were representing among the most important output generating sectors with average output multipliers of In addition, majority of service sectors output multiplier was found to be greater than economy s sectoral average ( ). It is noticeable that the average output multiplier of primary sectors ( ) was lower than the economy s sectoral average ( ) while secondary or manufacturing sectors average output multiplier ( ) was also lower than the economy s average sectoral output multiplier. This picture indicates that there was an existence of strong linkages of service sectors with all other sectors of Malaysian economy as compared to primary and secondary sectors. The sectors that contributed to tourism showed greater output multipliers than economy s sectoral average except wholesale and retail trade ( ), and entertainment and recreation sector ( ). Overall, the tourism industry reflects relatively strong inter-industrial relationship with other sectors of the economy as compared to primary sectors. Tourism has been considered to be a vital source of foreign exchange earnings competing with other export oriented industries. When comparing tourism related sectors with other export oriented sectors, it is interesting from the table 1 that direct tourism related sectors generated comparatively larger output than other export oriented industries of Malaysian economy. This is very much consistent with Ninth Malaysian Plan for boosting tourism industry as a vital sector of the economy. For example, the output multiplier of hotel and restaurant sector was found to be which was larger than export oriented foreign exchange earning sector such as palm oil sector ( ), radio, TV, and computer equipment sector ( ), and rubber and rubber products sector ( ) to name a few. The income multipliers show the change in the amount of income generated per unit of output resulted from the impact of changes in final demand spending. The magnitude of income multipliers coefficient varies between a high of attributed to the hotels and restaurants sector and a low magnitude coefficient of retained by Crude, Petrol and Natural Gas sector. The sectoral average income multiplier of Malaysian economy was estimated to be Services sectors or tertiary sectors generated an average income multiplier of This is higher than average income multiplier while the average income multiplier of primary ( ) and secondary or manufacturing ( ) sectors found to be lower than industry s average. Hotels and restaurants sector appeared to be the most important in terms of income multiplier, generating RM of household income to Malaysian residents per one additional Ringgit increase in final demand for that sector. The second most important income generating sector was emerged as entertainment and recreation ( ) sector. Meat and dairy products sector, and other private service sector ranked third, and fourth important income generating sectors in concern where all these industries together exceeding the industry s average of Education was viewed as the most important sector in terms of output but ironically this sector represents relatively lower income multiplier ( ) than the tourism related sectors. This hypothesizes the fact that, although this sector used to contribute significantly in generating output, has, in fact, made relatively insignificant contribution in generating income. Public administration and others (a sector) which was the second most important sector in terms of output generation appeared to be relatively non-significant sector in terms of income generation resulting in an income multiplier of as compared to output multiplier of According to the results found in table 1, most of the industries of services sector generally had higher propensity to generate output and household income. The results also reveal that sub-sectors that constituted tourism industry had higher income multiplier reflecting their ability to generate households income. The high income multipliers of tourism related sectors indicate that the large proportion of households income generated due to one Ringgit increase in tourist spending. When compared between the income multiplier of direct tourism related sectors and the income multiplier of other sources of foreign exchange earnings sector, it was found to be lower than direct tourism related sectors ( for hotel and restaurant sector versus for palm oil sector). The income multiplier of one of the direct tourism related sectors namely, the hotels and restaurants sector ranked top among the 52 industries considered. When examining the income multipliers between direct tourism related sector and its competing export substitute product sector, it is evident from table 1 that tourism related sectors hold the ability to generate more income than major export substitute industries.

4 32 Direct tourism related sectors ability to generate income was appeared to be higher than manufacturing sectors sectoral average. On the other hand, most of the export oriented industries income multiplier was found to be lower than economy s sectoral average. For an instance, with income multiplier of for hotels and restaurants sector generates the highest multiplier impact whereas radio, TV, and computer equipment sector, as one of the major alternative export oriented industries, generates the income multiplier of which was ranked as the second lowest income multiplier within the 52 sectors of Malaysian economy. The income multiplier of entertainment and recreation sector is about fourteen times higher than radio, TV, and computer equipment sector. Even, the income multipliers of other major alternative export oriented industries were also found to have been lower than the direct tourism related industries. Table 1: The multipliers impact of tourist expenditure on output, and income for fifty-two productive sectors of Malaysian economy Name of Sector Output multiplier Output Impact (RM million) Income multiplier Income Impact (RM million) Agriculture & Other , ,621 Palm Oil , ,389 Livestock , ,809 Forestry & Logging products , ,647 Fish etc , ,284 Crude, Petrol & Natural Gas , ,377 Metal Ore , ,284 Stone, Clay & Sand Quarrying , ,612 Meat & Dairy Products , ,286 Preserved Fruit, Vegetable, Oil & Fats , ,521 Preserved Sea Food , ,000 Grain Mill Products , ,611 Bakery & Confectionary Products , ,158 Ice & Other Foods , ,147 Wine & Soft Drinks , ,591 Tobacco , ,925 Cloths & Other Textiles , ,793 Leather Products , ,241 Furniture & Others , ,158 Paper & Board , ,756 Printed Product , ,177 Industrial Chemical & Others , ,115 Drug & Soap Preparations , ,872 Other Chemical Products , ,769 Petrol, Coal & Plastic Products , ,915 Rubber & Rubber Products , ,248 Glass, Cement & Other Non-metal Products , ,464 Iron & Steel , ,068 Non-Ferrous Metal , ,904 Fabricated Metal & Other Metal Products , ,778 Industrial & Household Machinery , ,509 Radio, TV & Com. Equipment , ,112 Ships, Motor Vehicles & Other Transport Equipment , ,267 Instruments & Clocks , ,670 Other Manufacturing Products , ,881 Electricity & Gas , ,423 Water , ,263 Buildings & Constructions , ,373 Wholesale & Retail Trade , ,571 Hotels & Restaurants , ,462 Transport , ,937 Communications , ,644 Banking, Insurance & Other Financial Service , ,403 Real Estate & Others , ,156 Business Services , ,324 Education , ,872 Health , ,306 Other Private Service , ,264 Entertainment & Recreation , ,017 Motor Vehicle & Other Repair , ,173 Recycle Product , ,632 Public Administration & Others , ,146

5 33 In regard to the output impact generated by tourism receipts of RM36.2 billion, it was found that the sector that yielded comparatively higher output multiplier did generate the higher output impact as the ranking of the sectors did not show any change. For example, the highest output multiplier was found for education sector and this sector generated the highest impact of RM million of output from inbound tourism receipts through direct, indirect, and induced impact. But, when comparing the sectoral income multipliers with income impact, it was found that the sector that yielded higher income multiplier did not necessarily produce the highest income impact. According to the figures found on the table, the direct tourism related sectors showed strong income impact compared to output impacts, reflecting inbound tourists expenditure s significance in generating income for Malaysian economy. The entertainment and recreation sector was the sector with greatest income impacts, generating RM79, 017 million from inbound tourism receipts totally (direct, indirect, and induced impacts) though this sector conceded the second highest income multiplier. A significant change was appeared in the ranking of sectors between income multipliers and income impact which was not the case in terms of output. The second higher income generating sector was found to be the hotels and restaurants sector which generated income impact of RM76, 462 million followed by real estate & others products (RM72, 156 million) and wine and soft drinks sector (RM62, 591 million). It is evident from table 1 that tourism related sectors generated relatively higher income impact than alternative foreign exchange earnings sector. The results implying that the contribution of inbound tourists expenditure in generating impacts was also relatively high for the tourism related sector. These figures indicate that there were existences of comparatively stronger relationships of tourism sectors with the other sectors of the economy concerning the generation of output and income. 5. Conclusion and Policy Recommendations The findings of this study reveal that the economic impacts generated by tourism can enormously benefit all sectors of an economy in one way or another. Although tourism yields the most direct impact on the services sectors, the economic impact of tourism holds the ability to generate substantial impacts upon all other sectors of the economy through creating secondary (indirect and induced) effects. The results also demonstrate clearly that all sectors of the economy benefit from tourism receipts, not just those that used to receive the initial receipts. Although direct impact of tourism receipts is contributing directly to the direct tourism related sectors, it does contribute significantly to the whole economy through indirect and induced effect. Therefore, it can be concluded that tourism has closer relationship with majority of the sectors of Malaysian economy. The output impact of inbound tourists expenditure of those sectors which obtained relatively lower earnings were said to have relatively lesser relationship with tourism sector, such as crude, petrol and natural gas sector, real estate and others sector, industrial and household machinery sector, radio, television and computer equipment sector, non-ferrous metal sector, forestry and logging products sector, and agriculture and other sector. It is also evident that primary sectors of Malaysian economy were receiving comparatively smaller benefit from tourism sector rather than secondary and tertiary sectors. Therefore, it is evidently conclusive that those primary sectors have slighter relationship with tourism. The relationships among the sectors of Malaysian economy vary which can be minimized by increasing the economic activity. For instance, this can be worked out by effectively decreasing the leakages being generated from imports. If imports are reduced, this will essentially improve the output impact. As such, other impacts (income, employment) do realize a significant increase in its value. Through the observation of the study results it can be streamlined that the sector that generates the higher output impact does not essentially produce the higher income impact. Therefore, when preparing appropriate policies for the potential improvement of tourism industry, the value of multipliers should be treated with sufficient caution. The results of this study can effectively be utilized for precise and realistic policy formulation. The knowledgeable government officials are expected to be able to determine as which sector should be given priority over others in attempting to increase in output or income. References Archer, B. H., 1976a. The anatomy of a multiplier. Regional Studies, Vol.10, pp Archer, B. H., 1976b. Uses and abuses of multipliers. In Planning for tourism development: Quantitative approaches, G. E. Gearing, W.W. Swart, & T. Vart, Eds. New York: Praeger, pp Archer, B. H., The value of multipliers and their policy implications. Tourism Management, Vol.3 No. 4, pp Briassoulis, H., Methodological issues: Tourism input-output analysis. Annals of Tourism Research, Vol.18, No. 3, pp Contini, C., Scarpellini, P., and Polidori, R., Agri-tourism and rural development: The Low-Valdelsa, Italy. Tourism Review, Vol.64, No. 4, pp Fletcher, J. E., Input-output analysis and tourism impact studies. Annals of Tourism Research, Vol.16, No. 4, pp Heng, T. M., and Low, L., Economic impact of tourism in Singapore. Annals of Tourism Research, Vol.17, No. 2, pp Henry, E. W., and Deane, B., The contribution of tourism to the economy of Ireland in 1990 and Tourism Management,Vol.18, No. 8, pp Kweka, J., Morrissey, O., and Blake, A., The economic potential of tourism in Tanzania. Journal of International Development, Vol.15, No. 3, pp Mazumder, M. N. H., El-Sadig, M. A. Murad, W. M., and Al-Amin, A. Q., Identifying potential inbound markets for Malaysian tourism industry. Journal of Vacation Marketing, Vol.17, No. 1, pp

6 34 Miller, R. E., and Blair, P.D., Input-output analysis: Foundations and extensions. Englewood Cliffs, NJ: Prentice-Hall Inc. Rashid, Z. A., Rahman, A. A. A., Othman, M. S., and Suib, A., Tourism impact analysis an inter-sectoral analysis of the Malaysian economy. Jurnal Ekonomy Malaysia, Vol.27, pp Rashid, Z. A., and Bashir, M. S., Economic impacts of changing tourist profile in Malaysia: An inter-industrial analysis. ASEAN Journal on Hospitality and Tourism, Vol.3, No. 1, pp Sugiyarto, G., Blake, A., and Sinclair, M. T., Tourism and Globalization Economic Impact in Indonesia. Annals of Tourism Research, Vol.30, No. 3, pp, Vaughan, D. R., Farr, H., and Slee, R. W., Estimating and interpreting the local economic benefits of visitor spending: An explanation. Leisure Studies, Vol.19, No. 2, pp , Wagner, J. E., Estimating the economic impacts of tourism. Annals of Tourism Research, Vol.24, No. 3, pp Yan, M., and Wall, G., Economic perspectives on tourism in China. Tourism and Hospitality Research, Vol.3, No. 3, pp Biographical notes Mohammad Nurul Huda Mazumder is a Lecturer in Faculty of Management, Multimedia University, Malaysia. He has received Masters in Social Science in Economics from University of Chittagong, Bangladesh in 1996 and currently pursuing his Ph. D. from Multimedia University, Malaysia. He has published a significant no. of journal and conference papers in numerous renowned journals and conferences along with book chapters. His research interest is diverse from economic impact analysis to tourism, poverty alleviation, environmental pollution, Islamic finance, and microfinance. Elsadig Musa Ahmed (Dr.) is an Associate Professor and coordinator for post graduate programs at Faculty of Business and Law, Multimedia University, Melaka Campus, Malaysia. An associate editor and reviewer of couple of journals and conferences, his research interests include productivity analysis, productivity and environment, development economics, economic growth and environment, and knowledge-based economy. Md. Abdur Raquib is a Senior Lecturer of Accounting at the Faculty of Business and Law, Multimedia University, Malaysia. He is an MBA graduate of Indiana University of Pennsylvania, USA. He also holds a Masters of Commerce and a Bachelors of Commerce with Honours in Finance from the University of Dhaka, Bangladesh. Currently he is a candidate for Ph.D. from Multimedia University. He has presented papers in the International Conferences in nine countries and so far published 25 articles in the International Journals and Conferences. Beside his own fields, his interest also spreads among the most emerging issues, such as, empowering workforce, environmental accounting, high performance work cultures, managerial impacts of cognitive and emotional intelligence, corporate governance, and risk and disaster management. Received November 2010 Accepted January 2011 Final acceptance in revised form January 2011