Africa’ s Comparative advantage In Travel Service Exports

Abstract

While trade in African merchandise has lagged behind that of other developing countries, services exports – notably travel and tourism – have shown remarkable growth over the past decade. This paper calculates revealed comparative advantage for 147 countries using a new measure of the Balassa index. The results indicate that 29 of the 50 African countries in the dataset reveal a comparative advantage in travel service exports. The source of this comparative advantage lies in the natural and cultural resources of African countries, and the relative advantages of air versus sea transport – validating an augmented Heckscher-Ohlin hypothesis. If African countries are to benefit from the growth in world service exports, researchers and policymakers should note the (relative) potential for African travel service exports, especially in the smaller, landlocked destinations.

Notes

1 The WTO classifies four modes of service trade: Mode 1 is defined as the supply of a service from the territory of one member (country) into the territory of another member (also known as cross-border supply); Mode 2 is the supply of a service in the territory of one member to the service consumer of any other member (consumption abroad); Mode 3 is the supply of a service by a service supplier of one member, through commercial presence in the territory of any other member (commercial presence); and Mode 4 is the supply of a service by a service supplier of one member, through the presence of natural persons of a member in the territory of any other member (presence of natural persons) (United Nations, 2002).

2 Data for 17 African countries are not available. For regression purposes, Egypt, Tunisia and Morocco have been excluded so as not to bias the results. South Africa has been maintained, as it will not experience the same regional characteristics as the North African countries.

3 Many studies, in fact, exclude the tourist havens of North Africa, as it is argued that tourist patterns in these countries are different to countries south of the Sahara due to their proximity to Europe. While this argument may be valid, Rogerson (2007:363) notes that this may pose problems with the interpretation of data released by tourism agencies.

4 While data for most of the countries reflect long-run growth trends, the volatility in tourist expenditure in a number of countries may reflect poor data collection and growth from a very low base. For example, between 2001 and 2002, tourist expenditure in the Sudan increased by an astounding 10 400% while falling by 9 160% the following year. Between 2004 and 2006, tourism expenditure increased again, this time by 144% per annum.

5 The authors accept that sea transport could also be a source of travel services (such as cruise liners). However, for African countries in general, cruise liners constitute an insignificant part of tourism arrivals.

6 Digital (or cable) transport costs are obviously an additional means of transport in the services trade (for IT services, for example), but are not considered here.

7 The Balassa RCA is problematic for comparative purposes, as, while a lower bound of zero is specified, no upper bound exists. The index can thus only be used when comparing relative rank orderings.

8 The normalised RCA is constructed so that no single country can reveal a comparative advantage in all service exports.

9 Figure 3 in the Appendix shows the countries that reveal a comparative advantage when measured with the traditional Balassa index. The results correlate strongly, although the traditional measure gives a greater weighting to the relative performance of smaller countries.

10 This is the primary reason for using a cross-section analysis of 2005, rather than a panel regression in which earlier years are included.