Using Input–Output and SAM Models in the Balearic Islands
8.6 Conclusions
added ranges from 3.62% with the standard input–output model and 7.21% when both residents’ consumption and consumption of fixed capital are endogenous, and that of the employment is about half percentage point lower, but still impressive:
6.80% in simulation 3. The remaining results reported provide information of the effects when the 10% fall affects only the indicated sectors. Thus, a 10% fall in the highly tourism sectors, other things being equal, would result in a fall of value added that ranges from 2.59% with the standard input–output model and 5.12% when both residents’ consumption and consumption of fixed capital are endogenous. As usual, the impacts on employment and imports are a bit lower than on value added but still remarkable.
It is also possible to simulate a 10% fall in non-residents’ demand using a social accounting matrix model. In this setting, three equivalent scenarios to those reported for the input–output model can be considered: first, only productive sec- tors are endogenous; second, productive sectors, factor and consumption accounts are endogenous; and third, the capital account is added to the set of endogenous accounts. Table 8.9 sums up the overall effects on value added and employment in the three scenarios. Comparing the figures with those in Table 8.8, it appears that the effects of a drop in non-residents’ consumption are somewhat lower than in the input–output setting. In our view, this is due to the way fixed coefficients are defined in both models: in the input–output model, they are calculated as domestic interme- diate flows over domestic production, while in the social accounting matrix model they are defined as total intermediate flows over total income. The results indicate that the fall in value added and employment could be substantial and may be behind the poor performance of the Balearic economy in the last decade.
C.PoloandE.Valle Table 8.8 The effects of 10% fall in non residents’ consumption: three input–output models
Gross Value Added % Employment % Imports RE %
Standard IO model HTS 1,922,377.651 –2.59 338,972.129 –1.96 780,740.309 –1.01
HTS+TS 1,909,434.351 –3.24 336,395.800 –2.71 777,231.419 –1.46
HTS+TS+MTS 1,905,777.214 –3.43 336,184.026 –2.77 776,926.909 –1.50
All 1,901,981.683 –3.62 335,339.176 –3.01 772,796.856 –2.02
Input–output model with endogenous residents’ consumption
HTS 1,899,103.649 –3.77 334,569.586 –3.23 767,110.623 –2.74
HTS+TS 1,878,185.381 –4.83 330,484.700 –4.42 758,931.442 –3.78
HTS+TS+MTS 1,873,733.208 –5.05 330,122.536 –4.52 758,161.349 –3.88
All 1,867,386.210 –5.38 328,795.047 –4.90 752,537.111 –4.59
Input–output model with endogenous residents’ consumption and depreciation investment
HTS 1,872,411.871 –5.12 329,729.347 –4.63 755,772.798 –4.18
HTS+TS 1,846,070.635 –6.46 324,661.071 –6.10 745,290.114 –5.51
HTS+TS+MTS 1,839,330.219 –6.80 323,883.960 –6.33 743,548.045 5.73
All 1,831,242.545 –7.21 322,240.821 –6.80 737,184.420 –6.54
Note: All figures are in million pesetas
Table 8.9 The effects of 10% fall in non residents’ consumption in a SAM model
SAM SAMinv
Total value added –5.09 –6.04
Total employment –4.54 –5.50
are taken into account. It is clear from these results that tourism has become the leading sector of the Balearic economy. As can be seen, introducing the induced effects means a big increase in the impact of non residents’ consumption in the regional economy. The impact on the value added increases 100%, the impact on employment increases 125% and finally the impact on imports from the rest of Spain increases 225%.
If the outstanding growth of tourism during the second half of the twentieth cen- tury has been the engine of the impressive economic growth of the islands, the recent fall in tourism flows since 1997 is probably the main cause of the poor per- formance of their economy in the last decade. The simulations we have performed with input–output and social accounting matrix models indicate that a 10% fall in non-residents’ demand may reduce value added between 3.6 and 7.2% depending on the type of model (standard input–output model, extended input–output model and social accounting matrix model) used. Similar results also hold for employment.
It is clear that the economic performance of the islands is tightly linked to the fate of tourism flows and that the regional government should pay a great deal of attention to analyze the causes behind its recent drop.
On the one hand, tourism has diversified, sun and sand no longer being the only option available, from rural tourism to adventure holidays and including ecotourism, all of which are related in some way to the environment. Moreover, new destina- tions have emerged to compete with Balearic Islands, offering similar products, not just in the Mediterranean but worldwide. Both factors, the diversification which has resulted in the environment becoming a resource and the competition posed by rival destinations with better-preserved environments, represent a threat to Balearic Islands’ continued success in the tourism sector.
On the other hand, tourism is set to be one of the major beneficiaries of the changing profile of European society in the coming decades. The ageing population, improvements to health, increased life expectancy and higher income levels among retired people will all result in greater demand for tourism services. The introduc- tion of the Euro as a common currency, the liberalisation of transport and the new technologies will all facilitate mobility and contribute to an increase in tourism.
What can be done? In the short-run, the regional government could reduce res- idents’ taxes to counteract the external shock. It is unlikely, though, that demand oriented policies of this sort will bring significant relieve to the economy. The indus- try should find ways to make investments less dependable on the summer entries and the regional government should dedicate more resources to counteract the impact that tourism growth has placed on the environment. The most urgent task, however, is to find out the causes behind the recent drop of non residents’ demand.
Tourism generates great economic wealth in our community, but we must also be conscious of the cost that it implies. Thus, tourism must be planned so that it grows in harmony with the economy which means trying to prevent congestion and degradation of the environment.
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