SHIV SHAKTI International Journal in Multidisciplinary and Academic Research (SSIJMAR) Vol. 5, No. 2, April 2016 (ISSN )

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1 SHIV SHAKTI International Journal in Multidisciplinary and Academic Research (SSIJMAR) Vol. 5, No. 2, April 2016 (ISSN ) Tourism s Economic Contribution to BRICS: An Analysis Dr. Monica Verma Assistant Professor, Marwadi Education Foundation s Group of Institutions, Rajkot, Gujarat. monica.vm.75@gmail.com Abstract Over the past years, tourism has proven to be a surprisingly strong and resilient economic activity and a fundamental contributor to the economic recovery by generating billion of dollars in exports and creating millions of jobs. This has been true for destinations all around the world. According to the World Travel and Tourism Council, Travel & Tourism s total contribution to the global economy in 2014 was US$7.6 trillion (2014 prices), which equates to 9.8% of total economy GDP in million new jobs were generated directly in the sector in 2014, and in total 6.1 million new jobs were created as a result of total direct, indirect and induced activity. The total contribution of Travel & Tourism to employment grew 2.3% in 2014, while the total GDP contribution grew 3.6%, faster than wider economy in 2014 and registering positive growth for the 5th successive year.. Tourism being one of the biggest and fastest growing industries globally, an attempt has been made in this paper to analyze the contribution of tourism to the BRIC economies. This is a descriptive research based on secondary data collected from World Travel & Tourism Council. Various statistical tools like mean, median, mode, standard deviation, skewness, kurtosis, F-value etc. have been used to analyze the data. An analysis of the BRICS countries shows that tourism's contribution is particularly important in countries where there is strong domestic demand for tourism. The same is true of countries that have developed high value-added tourism by combining the two fundamental pillars of domestic and international demand. Key Words: BRICS economies, Gross Domestic Product, Per capita income and spending on Leisure, International & Domestic tourism, capital invested Impact Factor = (Scientific Journal Impact Factor Value for 2012 by Inno Space Scientific Journal Impact Factor) Global Impact Factor (2013)= (By GIF) Indexing: 1

2 1.Introduction Tourism has become a major force in today s world economy. Despite wars, political turmoil, natural disasters, medical scares, terrorist attacks, and economic and energy crises in various parts of the world, international trade in tourism services has grown spectacularly since the 1970s. While growing affluence and falling real travel costs have been primary reasons for the surge in post-1970s international travel, changes in government travel policies have also played an important role. Over the past years, tourism has proven to be a surprisingly strong and resilient economic activity and a fundamental contributor to the economic recovery by generating billion of dollars in exports and creating millions of jobs. This has been true for destinations all around the world, but particularly for Europe, as the region struggles to consolidate its way out of one of the worst economic period in its history, said UNWTO Secretary- General, Taleb Rifai. (UNWTO, World Tourism Barometer, vol 13, January 2015). The travel and tourism industry is one of the largest single employers and, in many countries is the largest contributor to the services export sector, significantly affecting balance of payments (Papatheodorou, 1999). According to the World Travel and Tourism Council, Travel & Tourism s total contribution to the global economy in 2014 was US$7.6 trillion (2014 prices), which equates to 9.8% of total economy GDP in million new jobs were generated directly in the sector in 2014, and in total 6.1 million new jobs were created as a result of total direct, indirect and induced activity. The total contribution of Travel & Tourism to employment grew 2.3% in 2014, while the total GDP contribution grew 3.6%, faster than wider economy in 2014 and registering positive growth for the 5th successive year. Furthermore, since the 1940s, international travel has transformed from being an activity solely for the rich into an activity for the population at large (Ioannides & Debbage, 1997). According to the World Tourism Organisation, almost 922 million people travelled abroad for tourism in 2008, generating more thanus$944 billion in revenues. Considered as a whole, these expenditures accounted for nearly two percent of the world s gross national product (UNWTO, 2009). International travels has undergone a paradigm shift. Earlier it was costly and therefore affordable only by wealthy individuals. These wealthy individuals tended to travel to affluent countries with quality tourism infrastructure and services. As a result North America and Europe were the largest sources and recipients of International tourists. But, in recent decade, tourist arrivals in emerging countries have grown much faster than in developed ones. The Asia-Pacific region has seen the fastest growth. The United Nations World Tourism Organization (UNWTO) predicts that international tourism arrivals will grow by 3.3 percent per year between 2010 and 2030 and reach 1.8 billion total arrivals by Growth in emerging countries is expected to be twice as fast as in advanced ones. Tourism s market share in emerging countries is predicted to rise to 57 percent by 2030, compared to 47 percent in 2012.Further,World Travel & Tourism Council s, 2014 annual research report, shows that Travel & Tourism s total contribution to the global economy was US$7.6 trillion (2014 prices), which is equal to 9.8% of total economy GDP, 2.1 million new jobs were generated directly in the sector, and in total 6.1 million new jobs were created as a result of total direct, indirect and induced activity The total contribution of Travel & Tourism to employment grew 2.3%, while the total GDP contribution grew 3.6%, up 2

3 from 3.4%in Tourism being one of the biggest and fastest growing industries globally, an attempt has been made in this paper to analyse the contribution of tourism to the BRIC economies. 2. Over View of BRICS BRICS is the acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa. The acronym was coined in 2001 by Jim O Neill from investment bank Goldman Sachs in a paper entitled "Building Better Global Economic BRICs. The grouping was originally known as "BRIC " before the inclusion of South Africa in On June 16, 2009, the leaders of the BRIC countries held their first submmit in Yekaterinburg, and issued a declaration calling for the establishment of an equitable, democratic and multipolar world order. Since then they have met in Brasilia in 2010, in Sanya, on China's Hainan Island in 2011, in New Delhi, India, in 2012, in Durban, South Africa in 2013, in Fortaleza Brazil in 2014 The BRICS members are all developing or newly industrialized countries, but they are distinguished by their large, fast-growing economies and significant influence on regional and global affairs. As of 2014, the five BRICS countries represent almost 3 billion people which is approximately 40% of the world population. The five nations have a combined nominal GDP of US$ trillion, equivalent to approximately 20% of the gross world product, and an estimated US$4 trillion in combined foreign reserves. The Regional ranking of the BRICS is; Brazil is 7, China is 10, India is 11, South Africa 3 and Russia 33. The Exhibits below: Travel and Tourism Competitiveness Index in 2013 shows the state of tourism in these five countries; China doing well in all the parameters followed by Brazil. Exhibit 1(A) : Competitiveness Ranking of Nations on Factors affecting Tourism Country Overall Rank Regulatory Framework Business environment & infrastructure Human, Cultural and natural resources Brazil Russia India China South Africa Source : The Travel & Tourism Competitiveness Report

4 Exhibit 1(B): The Travel & Tourism Competitiveness Index in detail Country Brazil Russia India China South Africa Policy rules and regulations Environmental sustainability Safety and security Health and hygiene Prioritization of Travel & Tourism Air transport infrastructure Ground transport infrastructure Tourism infrastructure ICT infrastructure Price competitiveness in T&T Human resources Affinity for Travel & Tourism Natural resources Cultural resources Source : The Travel & Tourism Competitiveness Report PURPOSE OF STUDY: The Credit Suisse Consumption Map breaks consumer spending down into 3 categories of purchases: 1) Essential goods and services- food, household and communication items like meat and dairy products, bottled water and mobile phones. 2) Useful goods and services- encompass property, healthcare, education, computers and vehicles and 3) Discretionary goods and services- consist of brand name clothing, vacations and smart phones. The share of consumer spending devoted to discretionary and useful goods and services tends to increase as incomes rise and countries achieve higher levels of development. The purpose of the study is to know how has it worked for BRICS nations. Also to know that despite tourism being one of the biggest and fastest growing industries globally, how far the BRICS nations have been able to exploit its potential. And with the present rate of growth how far can they match the expected annual growth of 3.8% as per World Travel and Tourism Councils estimates 4. LITERATURE REVIEW: Cobbinah, Black & Thwaites (2013) reveals that current conceptual explanations of tourism are linked to sustainable development. However, tourism activities in developing countries are usually driven by profit without adequate consideration for environmental and social factors. The paper raises two questions and further recommends that tourism activities should be informed by sustainable development principles. Seetanah (2011 ) Using a panel data of 19 island economies for the years that span from 1990 to 2007, this study explores the potential contribution of tourism to economic growth and development within the conventional augmented Solow growth model. Since economic growth is argued to be essentially a dynamic phenomenon we employ GMM method to account for these issues. The results show that tourism significantly contributes to the economic growth of island economies. Moreover, the tourist-growth nexus is observed to be a dynamic phenomenon and 4

5 granger causality analysis reveals a bi-causal relationship between tourist and growth. Comparative analysis with samples of developing and developed countries shows that tourism development on island economies may have comparatively higher growth effects. Freytag & Vietze (2010) find that biodiversity while being significantly and positively correlated with inbound tourism receipts in Developing Countries, has no significant relation with tourist arrivals. This can be interpreted as an indicator that mass tourism is not influenced by biodiversity whereas individual tourism (as the superior good) is. Consequently, we are able to show empirical a positive influence of sustainable tourism on economic growth. Therefore, it may be a promising development strategy to invest in biodiversity and attract high budget tourists. Sequeira & Nunes (2008) On average, tourism-specialized countries grow more than others. This is not consistent with the core of modern economic growth theory that suggests that economic growth is linked to sectors with high-tech intensity and large scale. In this article, we use appropriate panel data methods to study the relationship between tourism and economic growth. In general, we show that tourism is a positive determinant of economic growth both in a broad sample of countries and in a sample of poor countries. However, contrary to previous contributions, tourism is not more relevant in small countries than in a general sample. Archer & Fletcher (1996) in their paper describes the results of a detailed study to analyze the impact made by 1991 tourism expenditure on incomes, employment, public sector revenue and the balance of payments in the Seychelles. These tourism impacts, found to vary by visitors' countries of origin, provide useful policy and marketing implications, although this variation was found to be related almost entirely to the different magnitudes of expenditure than to variations in the size of the multiplier by country of residence. 4. RESEARCH METHODOLOGY: 4.1 Research Objectives: 1. To analyze the tourism s direct and indirect contribution to GDP 2. To investigate the effect of Per capita income on Leisure, International & Domestic Spending. 3. To investigate the effect of capital invested on GDP. 4.2 Research Methodology: This is a descriptive research based on secondary data collected from World Travel & Tourism Council. Various statistical tools like mean, median, mode, standard deviation, skewness, kurtosis, F-value etc. have been used to analyze the data. 5 RESEARCH ANALYSIS 5.1 INDIRECT EFFECTS OF TOURISM ON GDP 5

6 Tourism is a major component of the services economy, representing 30% of international trade in services. Apart from the direct contribution, one vital contribution that tourism can make to economic growth lies in its indirect impacts, which in the BRICS countries represent over 62% of tourism's total contribution to GDP. These indirect economic impacts, which correspond both to goods and services purchased by the tourism sector and to investment and public spending generated by tourism, are an important driver of economic growth. Tourism, especially the hotel and catering segments, is one of the few sectors of the economy to be at the centre of the production chain, not only for farm and food products but also for consumer and capital goods. Table 1: Comparison of tourism's contribution to GDP in the BRICS countries (%) Direct Indirect Total Years Brazil Russia India China South Africa Brazil Russia India China South Africa Brazil Russia India China South Africa CAGR Source : WTTC 2014 Table 1A: Analysis of Table 1 Direct Indirect Total Country Brazil Russia India China South Africa Brazil Russia India China South Africa Brazil Russia India China South Africa Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Rank Source : Computed Table 1 shows that percentage compounded average growth rate is negative for all the BRICS countries except for South Africa. Indirect contribution for all the BRICS nations is greater than direct contribution (mean value ) Based on the mean value Brazil ranks 1 st in direct contribution to GDP closely followed by China, where as China stands far ahead and is 1 st in indirect contribution. Of all the BRICS nations, China has maximum contribution from tourism. Whereas India despite having such a diverse and rich tourist places ranks 5 th. 6

7 Positive skewness indicates that the "tail" of the distribution is more stretched on the side above the mean. Negative skewness indicates that the tail of the distribution is more stretched on the side below the mean. Positive kurtosis indicates a relatively peaked distribution. Negative kurtosis indicates a relatively flat distribution The particularly high indirect contribution of tourism to GDP suggests that tourism has the potential to make a substantial contribution to growth in all countries. However, the extent and effectiveness of that contribution, especially where it is indirect, depends on the policies to promote tourism implemented in each country. 5.2 EFFECTS OF TOURISM ON EMPLOYMENT The International Labour Organization (ILO) estimates that tourism generated 253 million jobs worldwide in million new jobs were generated directly in the sector in 2014, and in total 6.1 million new jobs were created as a result of total direct, indirect and induced activity. The same applies to the BRICS countries. Tourism's indirect contribution to job creation confirms its importance for employment in the tourism supply chain as shown by Table 2. However, this indirect contribution remains lower than that of direct employment for India from 2008 to Table 2: Contribution of tourism to Employment Direct Indirect Total Years Brazil Russia India China South Africa Brazil Russia India China South Africa Brazil Russia India China South Africa CAGR Source : WTTC 2014 Table 2A : Analysis of Contribution of tourism to Employment Direct Indirect Total Brazil Russia India China South Africa Brazil Russia India China South Africa Brazil Russia India China South Africa Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Rank Source : Computed 7

8 The compounded average growth in direct employment generated by tourism industry is negative for Brazil and Russia and for other countries, though not negative it is very low. Growth in indirect employment is even negative for all the countries except for South Africa. Positive skewness indicates that the "tail" of the distribution is more stretched on the side above the mean. Negative skewness indicates that the tail of the distribution is more stretched on the side below the mean.. Positive kurtosis indicates a relatively peaked distribution. Negative kurtosis indicates a relatively flat distribution 5.3 Relation between GDP and Employment By using Spearman's correlation coefficient, ( of association between two ranked variables., also signified by r s ) we measures the strength Total employment to Total GDP Direct employment to Total GDP Indirect employment to Total GDP Source : Computed Brazil Russia India China South Africa The Spearman correlation coefficient, r s, can take values from +1 to -1. A r s of +1 indicates a perfect association of ranks, a r s of zero indicates no association between ranks and a r s of -1 indicates a perfect negative association of ranks. The closer r s is to zero, the weaker the association between the ranks. Here we see that for South Africa r s is.98,.90 and.97 thus there is close to perfect association between the two variables.there is no association between total employment and total GDP, and indirect employment and Total GDP in case of china. where as for china and India there is negative association between direct employment and total GDP. 5.4 Effect of Per capita income on Leisure, International & Domestic Spending F- Value clearly shows that there is a significant relation between percapita and spending on leisure, international and domestic tourism for all the BRICS countries. Increase in percapita has lead to an increase in spending on tourism whether its leisure, international or domestic. 8

9 Table 3: Impact of Percapita on Leisure, International & Domestic Spending (US$ bn) Brazil Russia India China South Africa Years Percapita Leisure International Domestic Percapita Leisure International Domestic Percapita Leisure International Domestic Percapita Leisure International Domestic Percapita Leisure International Domestic , , , , , , , , , , , , , , , , , , , , , , , CAGR Source : WTTC 2014 Note : Per Capita income rounded up & rest of the variables have been reduced to one decimal Table 3A : Correlation Matrix of Percapita Income percapita Brazil Russia India China South Africa Leisure International Domestic Source: Computed Table3B: Model Summary Brazil Russia India China South Africa Source: Computed Regression Statistics Multiple R R Square Significance F Leisure E-19 International E-19 Domestic E-20 Leisure E-17 International E-18 Domestic E-18 Leisure E-17 International E-19 Domestic E-19 Leisure E-29 International E-25 Domestic E-28 Leisure E-12 International E-13 Domestic E-15 9

10 Table 3C : Regression Analysis Brazil Russia India China South Africa Regression Statistics Coefficients Intercept Coefficients percapita t Stat P-value Leisure E-19 International E-19 Domestic E-20 Leisure E-17 International E-18 Domestic E-18 Leisure E-17 International E-19 Domestic E-17 Leisure E-29 International E-25 Domestic E-28 Leisure E-12 International E-13 Domestic E Impact of Capital invested and Gross Domestic Product Substantial investment is required in order to develop tourism, which often leads to tourism being compared to heavy industry in terms of public and private investment in infrastructure such as road and transport networks, drinking water distribution, waste treatment, access to the electricity network and access to new communication systems. In addition, as pointed out in United Nations Conference on Trade and Development (UNCTAD) reports since 1998, it is often necessary to take a long-term view of investment in tourism. This is the case in the hotel business in particular, where the return on investment can often take ten years or more. 10

11 Table 4 : Effect of capital invested on GDP (%) Years Brazil Russia India China South Africa Capital Capital Capital Capital Capital invested Total GDP Direct GDP invested Total GDP Direct GDP invested Total GDP Direct GDP invested Total GDP Direct GDP invested Total GDP Direct GDP Source : WTTC 2014 Table 4A : correlation between capital invested and GDP Capital Invested Brazil Russia India China South Africa Total GDP Direct Contribution to Brazil Russia India China South Africa Table4B: Model Summary Regression Statistics Multiple R R Square Significance F Total GDP Direct GDP Total GDP Direct GDP Total GDP Direct GDP Total GDP Direct GDP Total GDP Direct GDP

12 The correlation between capital invested and its contribution to direct GDP and Total GDP is negative for Brazil, Russia and India and positive for China and South Africa. In Brazil, Russia and India capital invested has not generated an increase in GDP. In China though it has lead to an increase but it is very sluggish. In South Africa capital invested has yielded substantial growth in GDP. Conclusion Regression Statistics Table4C: Regression Analysis Coefficients Intercept Coefficients percapita t Stat P-value Accepted Total GDP H0 Brazil Direct GDP H0 Total GDP H0 Russia Direct GDP H0 Total GDP H1 India Direct GDP H1 Total GDP H1 China Direct GDP H0 Total GDP H1 South Africa Direct GDP H1 source : Computed We see that the indirect effect of the tourism is high in all the countries. This means that a high degree of specialization in tourism can represent a very significant proportion of total national output, provided that support policies can be implemented to develop the indirect effects of tourism. This is the case where there is a particularly strong link between tourism demand and the agrifood sector, which also stimulates agrifood exports to international tourists' home countries. An analysis of the BRICS countries shows that tourism's contribution is particularly important in countries where there is strong domestic demand for tourism. The same is true of countries that have developed high value-added tourism by combining the two fundamental pillars of domestic and international demand. It is because there is strong representative (internal) demand, within the meaning of international economic analysis, that the tourism sector can expand, drawing on essential infrastructure in order to acquire the know-how that ensures a significant presence in the global marketplace (effects of scale). It is also because there is a varied and competitive range of tourism products and services on offer, from a comparative advantage standpoint, that a country's tourism industry can become competitive on international markets in terms of value for money. In these circumstances, tourism can play a significant role only if the prospects for growth in tourism demand are good enough to justify capital spending projects that require very substantial funding in order to build essential infrastructure and generate the desirable productive investment. 12

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