Tourism As an Alternative Source of Regional Growth in Portugal
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Centro de Estudos da União Europeia (CEUNEUROP) Faculdade de Economia da Universidade de Coimbra Av. Dias da Silva, 165-3004-512 COIMBRA – PORTUGAL e-mail: [email protected] website: www4.fe.uc.pt/ceue Sara Proença and Elias Soukiazis Tourism as an Alternative Source of Regional Growth in Portugal. DOCUMENTO DE TRABALHO/DISCUSSION PAPER (SEPTEMBER) Nº 34 Nenhuma parte desta publicação poderá ser reproduzida ou transmitida por qualquer forma ou processo, electrónico, mecânico ou fotográfico, incluindo fotocópia, xerocópia ou gravação, sem autorização PRÉVIA. COIMBRA — 2005 Impresso na Secção de Textos da FEUC 1 Tourism as an Alternative Source of Regional Growth in Portugal1. Sara Proença* and Elias Soukiazis** Abstract The role of tourism gains fundamental importance especially for small countries with privilege geographical location and favourable weather conditions. This paper examines the importance of tourism as a conditioning factor for higher regional growth in Portugal by employing a convergence approach of the Barro and Sala-i-Martin type. The panel data estimation approach gives evidence of the positive impact of tourism (through the accommodation capacity) on the growth of per capita income among the Portuguese regions, speeding the convergence rate. On the other hand, substantial economies to scale are detected in the tourism sector by testing the Verdoorn Law at a regional level. Both results suggest that tourism can be considered as an alternative solution for enhancing higher regional growth in Portugal if the supply characteristics of this sector are improved. Key words: tourism, conditional convergence, economies to scale, Verdoorn´s Law, panel regressions. JEL Codes: C23, D12, L83. Author for correspondence: Elias Soukiazis, Faculdade de Economia, Universidade de Coimbra, Av. Dias da Silva, 165, 3004-512 Coimbra, Portugal, Tel. + 351 239 790 534, Fax + 351 239 40 35 11, e-mail: [email protected]. (*) Agrarian School, Polytechnic of Coimbra, Portugal ([email protected]) (**) Faculty of Economics, University of Coimbra, Portugal ([email protected]) 1 This study is a part of the MA dissertation elaborated by Sara Proença under the supervision of Elias Soukiazis. 2 1. Introduction The tourism activity in Portugal is responsible for about 8% of the national product and employs 10% of the total labour force. On the other hand, the receipts from tourism contribute substantially in financing the current account deficit in this country. Almost 60% of the current account deficit is financed by receipts generated from the tourism activity. At a regional level tourism solves the problem of unemployment and replaces activities that lost competitive advantages (specially in the agricultural sector). In some of the regions (Algarve in the South and islands of Madeira and Azores), tourism is the main tradable sector employing a substantial number of labour force. All these are convincing arguments to justify an empirical analysis that measures the impact of tourism on economic growth, especially at a regional level. The aim of this paper is twofold. In first place we test the importance of tourism as a conditioning factor in improving the standards of living of the populations in the Portuguese regions. In doing so, the well known conditional convergence approach of the Barro and Sala-i-Martin type is used to test for convergence in per capita income among the 30 NUTs III Portuguese regions. In second place we test Verdoorn´s Law which relates productivity growth to the growth of output to detect economies of scale characteristics. The presence of significant economies to scales in the tourism sector will suggest that this sector can constitute an alternative source of economic growth improving the standards of living of the Portuguese regions. The empirical analysis uses the panel estimation techniques combining time-series and cross-sectional data referred to the Portuguese regions at the NUTs II and III levels. To our knowledge, at least for Portugal, there are no studies2 that tested the impact of tourism on regional growth or searched for the presence of economies to scale in this sector. The remainder of the paper has the following structure: Section 2 analyses the disparities of per capita income among the Portuguese regions over time and gives some information on the accommodation capacity of the tourism sector at a regional level. The convergence hypothesis in per capita income is tested in Section 3, using tourism (accommodation capacity) as the conditioning supply factor for higher growth and the results are discussed. Section 4 gives evidence of the presence of economies to scale in the tourism sector, through the estimation of the Verdoorn´s Law. The last section concludes, summarizing the main findings. 2 Ledesma-Rodríguez, F. et al. (2001) provide a study for Brazil. 3 2. Per capita income disparities among the Portuguese Regions Per capita income differences are significant across regions in Portugal. Table 1 describes the evolution of per capita income of the Portuguese regions at NUTs II (7 regions) and NUTs III (30 regions) desegregation levels, over a short period of 9 years, from 1993 to 2001 where reliable data is available3. A relative position between the 30 NUTs III regions in the beginning and the end of the period, as well as, in relation to the richest region (Grande Lisboa) are reported to detect any catching-up tendencies. At a first instance, Table 1 reveals that the richest regions (Grande Lisboa, Grande Porto, Algarve, Alentejo Litoral, Pinhal Litoral, Baixo Mondego, and lately Madeira) belong to the coastal area (or near the sea regions), which are attractive places from the point of view of tourism demand, while the poorest regions (Tâmega, Serra da Estrela, Pinhal Interior Norte, Pinhal Interior Sul, Minho-Lima, Alto Trás-os-Montes) are part of the in-land area, less attractive destination places for tourists4. From 1993 to 2001, nine regions preserved their relative position, ten regions improved and eleven deteriorated their relative position. It is important to note that the most remarkable improvement (from the 16th position in 1993 to the 2nd position in 2001) happened with the islands of Madeira5, where tourism activity is predominant. Another region with substantial change in its relative position is “Lezíria do Tejo” which moved from the 14th position in 1993 to the 6th position in 2001, a non costal but near the sea (and near the Lisbon) region. The relative position of each region with respect to benchmark (Grande Lisboa) doesn’t show any substantial improvement. Only seven regions increased their relative position catching up the richest region, four stayed at the same level and all the others (18 regions) diverged in relation to the benchmark. Therefore, there is no clear evidence of a substantial catching-up process between the Portuguese regions during this period. Madeira is again the region with the higher approximation to the richest region. In 1993, Madeira’s per capita income was only 46% of Lisbon’s but after nine years jumped to 65% in 2001, being the second region with the highest per capita income in Portugal. Madeira also reveals the highest average growth rate (13.2%) in per capita income over the whole period, followed by “Lezíria do Tejo” growing at 10.4% on average. 3 Regional GDP is in current values since there are no regional consumer price indices to deflate GDP. 4 For a better orientation of the location of the Portuguese regions see the Map in the Appendix I illustrating the regional division of Portugal at NUTs II and NUTs III levels. 5 Madeira and also the islands of Azores benefit from an autonomous political system (having their own parliament and president) but receive a substantial financial support from the central government. 4 Table 1. Per capita income of the NUTs II and III Portuguese regions, 1993-2001. Years 1993 1994 1995 1996 1997 1998 1999 2000 2001 01/93 Regions Average (NUTS II and III) change Ranking %* 1 000 Euros %* Ranking % Portugal 42.5 45.8 52.4 55.7 60.1 65.0 69.5 75.3 79.9 8.2 Norte 5.9 6.5 6.8 7.3 7.6 8.2 8.7 9.1 9.6 6.2 Minho-Lima 26th 38 4.2 4.8 5.2 5.6 5.9 6.3 6.7 7.1 7.5 36 25th 7.5 Cavado 17th 45 5.0 5.7 6.2 6.7 7.0 7.5 8.0 8.5 9.0 44 18th 7.6 Ave 9th 52 5.8 6.3 6.8 7.1 7.5 8.0 8.6 8.9 9.2 45 17th 6.0 Grande Porto 2nd 74 8.2 8.8 9.3 9.8 10.4 11.0 11.7 12.0 12.4 60 3rd 5.3 Tâmega 30th 30 3.4 3.8 3.8 4.0 4.4 4.7 5.1 5.5 5.9 29 30th 7.3 Entre Douro e Vouga 8th 53 5.9 6.6 6.8 7.4 7.9 8.7 9.4 9.6 10.3 50 12th 7.3 Douro 20th 44 4.9 5.4 5.3 5.9 5.8 6.0 6.6 6.9 7.8 38 23rd 6.2 Alto Trás-os-Montes 25th 39 4.3 4.8 5.1 5.4 5.5 6.0 6.3 6.7 7.1 35 27th 6.6 Centro 5.5 6.1 6.5 6.9 7.3 7.9 8.4 9.1 9.7 7.4 Baixo Vouga 5th 61 6.8 7.4 7.6 8.0 8.5 9.1 9.7 10.4 10.9 53 9th 6.1 Baixo Mondego 7th 54 6.1 6.9 8.0 8.2 8.7 9.2 9.7 10.4 11.0 54 8th 7.8 Pinhal Litoral 6th 57 6.4 7.2 7.7 8.3 8.9 9.4 10.3 10.9 11.8 58 5th 8.0 Pinhal Interior Norte 28th 35 3.9 4.4 4.3 4.7 4.9 5.5 5.8 6.4 6.9 34 28th 7.7 Dão-Lafões 24th 39 4.3 4.6 4.5 5.0 5.3 5.8 6.3 7.0 7.6 37 24th 7.4 Pinhal Interior Sul 27th 36 4.0 5.4 5.3 5.9 6.0 6.5 6.4 7.0 7.3 35 26th 8.1 Serra da Estrela 29th 34 3.8 4.2 4.1 4.4 4.8 5.2 5.6 6.2 6.6 32 29th 7.2 Beira Interior Norte 22nd 42 4.7 5.1 5.3 5.7 6.0 6.4 6.9 7.5 8.0 39 22nd 6.8 Beira Interior Sul 11th 49 5.4 6.1 7.5 7.7 8.1 8.6 9.2 10.0 10.6 52 11th 8.9 Cova da Beira 21st 42 4.7 5.2 5.8 6.4 6.5 6.9 7.4 8.0 8.6 42 20th 7.9 Lisboa e Vale do Tejo 8.6 9.2 10.5 11.1 12.2 13.3 14.1 15.0 15.8 8.0 Oeste 10th 49 5.5 5.9 6.2 6.8 7.2 7.9 8.5 8.9 9.7