Trade in tourism services: Explaining tourism trade and the impact of the general agreement on trade in services on the gains from trade

Abstract

The article addresses two questions related with tourism as a service trade. Can tourism be explained as other export activities? Does service liberalisation have a positive or negative impact on tourism receipts in destination countries? Previous research has either focused on the demand side factors (i.e. factors of demand in the origin countries) or on tourism as a long-run factor of economic growth. The research shows that a complementary perspective such as that offered by trade in a supply side perspective can render additional insights towards understanding tourism. This approach can explain why countries have absolute and comparative advantage. Another finding is that tourism as an export can be explained by some of the same destination factors that explain other service exports. Using different panel estimators the importance of supply side factors that are to some extent exclusive to tourism are demonstrated: the general price competitiveness of the destination, tourism infrastructure and the provision of safety. The econometric models also confirm the relevance of other conventional explanatory factors of trade in services such as GDP per capita and internet usage. The last part of the article analyses the welfare gains from trade under the general agreement on trade in services (GATS). The revenue (tourism receipt) effect is decomposed into a volume (arrival) and price effect. Results suggest that liberalisers under the GATS gained especially from a volume effect with average higher growth rates in the number of arrivals. There is also found to be a positive effect on the average income earned per tourist from being a liberaliser.

Keywords:

• trade in services
• tourism
• GATS
• liberalisation of trade in services

JEL Classifications:

• F10
• F12
• F14
• L83

Notes

1. Michael Kremer's o-ring theory of economic development is based on the idea of the need for positive assortative matching in production – e.g. output is maximised when similarly skilled people work together.

2. With neutral comparative advantage (toursh/popsh=1), a person from one country is as likely to service a person from another country as the next. When a country has comparative advantage its citizens are more likely to service a person from another country.

3. That is the price that can be arrived at by using the accounting identity that the income from tourism divided with the number of arrivals must be equal to the average price paid for a travel (as we use towards analysing the impact of trade liberalisation in Section 6).

4. If this was a true causal relationship, it would imply something similar to the Samuelson–Balassa effect, e.g. that the upward pressure on local prices and productivity caused by tourism activities is transmitted to the prices and productivities in other non-tourism sectors.

5. This has the consequence that the panel structure of the data in this case cannot help to reduce the problem of unobserved variables. A third factor that is not observed such as political regime may be the underlying explanatory factor, e.g. of both a low level of commitment towards liberalisation of services and resulting growth rates in receipts RECEIPT and its main components of tourist arrivals ARRIVALS and average travel price PRICE.