SafariLands.org: Books & Articles: Tourism and the Economy of Tanzania: a CGE analysis

Abstract
Although much literature exists to demonstrate the importance of tourism as a foreign exchange earner, little is known about how tourism expansion affects the economy of a developing country (LDC). This paper employs a CGE analysis to demonstrate the potential contribution of tourism for economic growth in Tanzania using a SAM for 1992. The efficacy of tourism taxation and infrastructure development as important ways to amplify the beneficial impact of tourism is demonstrated. The findings indicate that tourism expansion has substantial impact on the economy as shown by increases in real GDP, total welfare and exports. Improvement of infrastructure appreciably amplifies the effects of tourism expansion and tourism taxation has an unambiguously favourable impact on tax revenue and welfare. As LDCs lack sufficient resources to enhance growth, tourism may provide as a source of tax revenue to finance infrastructure projects that will benefit the economy as whole, as well as tourists.

1. INTRODUCTION
In most developing countries endowed with significant tourist attractions, tourism has emerged as a new impetus for economic growth given its ability to generate foreign exchange and employment. A concise analysis of the economic impact of tourism for a developing country is important to guide the policy intended to develop tourism and augment its benefit on the economy (see Dwyer and Forsyth, 1993). Tourism impacts on the economy through tourists expenditure on different (mostly non-traded) goods and services (Hazari and Sgro, 1995:243). Thus, the tourist expenditures may be regarded as an inflow of foreign exchange that can lead to appreciation of exchange rate hence reduction of the domestic price of exports, which acts as a disincentive to exporters. More generally, the economic impact of tourism can be examined by analysing its impact on the growth of production, use of the factors of production or on the countrys balance of payments (Mikic, 1988: 302).

This paper examines the economy-wide impact of tourism in Tanzania using a CGE analysis. In a destination country such as Tanzania, tourism can be broadly defined to include the provision of goods and services necessary to maintain tourists, e.g. transport, accommodation and restaurants.

Tanzania is an interesting case for analysis. The country is endowed with various natural resources that form a mainstay of tourist attractions; almost a third of the land area is allocated to natural parks. Trends in the performance and growth of tourism in Tanzania (see Curry, 1986; Wade et al, 2001) show that for the last decade, tourism has grown to be an important sector in Tanzania. As a share of total exports, tourism earnings increased from 15% in the 1980s to over 40% in the 1990s, becoming the second largest foreign exchange earner after agriculture.

Tourism earnings as a share of GDP increased significantly, from about 1% in the 1986-92 period to over 6% in the 1993-98 period; one of the highest in SSA countries (see WTO, various years).
Previous economic impact studies of tourism have concentrated on estimating different multiplier values of tourism for different countries using Input-Output (IO) analysis (Archer and Fletcher,
1990; Sinclair, 1998; Wagner, 1997). In the specific case of Tanzania, both Curry (1986) and Kweka et al (2001) used IO analysis to demonstrate economic significance of tourism. However,
the essence of economic impact of tourism is about the potential structural changes that tourism expansion imparts on the destination economy, which eventually lead to two problems. Firstly, as
tourism expansion is associated with positive and negative impacts, is the net effect positive or negative? Secondly, in what way can the positive effects be maximised and the negative effects be...

Download Full Article at: http://www.safarilands.org/docs/tourism-and-the-economy-of-tanzania.pdf