Liberalizing Trade in Tourism Services Under the CARIFORUM EU Economic Partnership Agreement in the OECS: Examining its Effect on Tourism Demand and Tourism Related Foreign Direct Investment Item Type Thesis Authors Alleyne, Alistair Rights <a rel="license" href="http://creativecommons.org/licenses/ by-nc-nd/3.0/"><img alt="Creative Commons License" style="border-width:0" src="http://i.creativecommons.org/l/by- nc-nd/3.0/88x31.png" /></a><br />The University of Bradford theses are licenced under a <a rel="license" href="http:// creativecommons.org/licenses/by-nc-nd/3.0/">Creative Commons Licence</a>. Download date 30/09/2021 06:54:53 Link to Item http://hdl.handle.net/10454/17673 LIBERALIZING TRADE IN TOURISM SERVICES UNDER THE CARIFORUM EU ECONOMIC PARTNERSHIP AGREEMENT IN THE OECS: EXAMINING ITS EFFECT ON TOURISM DEMAND AND TOURISM RELATED FOREIGN DIRECT INVESTMENT Alistair ALLEYNE Submitted for the Degree of Doctor of Philosophy School of Management Faculty of Management and Law University of Bradford 2019 Abstract Alistair Alleyne Liberalizing Trade in Tourism Services Under the CARIFORUM EU Economic Partnership Agreement in the OECS: Examining its Effect on Tourism Demand and Tourism Related Foreign Direct Investment. Keywords: Tourism, Services, CARIFORUM, Tourism Demand, Trade, Liberalization, Foreign Direct Investment This thesis is a study on the liberalization of trade in tourism services that has taken place between the European Union and Organisation of Eastern Caribbean States (OECS) under the Caribbean Forum (CARIFORUM) -European Union (EU) Economic Partnership Agreement (EPA). It focuses on Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. They are all members of the OECS, the Caribbean Community and Common Market (CARICOM) and CARIFORUM and they are EPA signatories. Using Panel Auto Regressive Distributed Lag modelling, the study is the first to empirically test the effect of liberalizing trade in tourism services (proxied by the EPA) on inflows of tourism related foreign direct investment and European tourism demand regarding the aforementioned countries. It focuses on the period 1997 – 2013. The results indicate that Gross Domestic Product Per Capita (GDPPC) is a statistically significant determinant of tourism related foreign direct investment. This supports the established hypothesis that market size measured by GDP per capita is a key determinant of FDI. Inflation rate (IR) and trade openness (OPEN) are also significant determinants of tourism related foreign direct investment whilst the EPA is not. Regarding European tourism demand income, prices, prices in a substitute destination and room supply are statistically significant determinants in the long run. Barbados is viewed as a complementary destination to the OECS EPA signatories. However, in the short run the EPA is not a statistically significant determinant of European tourism demand which it negatively affects. i Acknowledgements I thank God for bringing me to the end of this course, my mother for encouraging me to pursue this course of study, my sisters, my father as well as my cousins and friends for constantly checking on me over the past five years. Additionally, I thank my supervisors Dr. Mark Baimbridge and Dr. Dariya Mykhayliv for all their advice and guidance throughout my period of study which was invaluable in helping me to complete the study. I would also like to the following individuals who sent me statistical data and other information when I requested it as well as those who gave me permission to use copyrighted material. Mr. Vanroy Agard The Ministry of Sustainable Development, St. Kitts Ms. Roselieu Augustin Saint Lucia Tourist Board Dr. Pamela Benjamin Ministry of Finance – Commonwealth of Dominica Dr. Philemon Harris CARICOM Statistics Programme Ms. Monique Jacob Discover Dominica Mr. Colin James The Antigua and Barbuda Tourism Authority Ms. Anneke Jessen Inter-American Development Bank Ms. Shermalon Kirby Eastern Caribbean Central Bank Mr. Elingford Roban St. Vincent and the Grenadines Tourism Authority Ms. Gatlin Roberts Ministry of Finance and Economic Planning St. Vincent and the Grenadines Ms. Esther Thomas Grenada Tourism Authority Mr. Duane Vinson SHARE Center ii Ms. Lavonne Williams The Ministry of Economic Planning and Sustainable Development – St. Vincent and the Grenadines iii Table of Contents Abstract i Acknowledgements ii Table of Contents iv List of Figures x List of Tables xii Glossary xiii Chapter 1 Introduction 1 1.1 Introduction 1 1.2 Aim 4 1.3 Objectives 4 1.4 Research Questions 6 1.5 Motivation 7 1.6 Structure and Outline 8 Chapter 2 Background 11 2.1 Introduction 11 2.2 The Economic Integration Process in the Caribbean and the Caribbean – European Trading Relations: The Historical Dimension 13 2..2.1 The Economic Integration Process in the Caribbean and the European Influence 14 2.2.2 Caribbean- European Trade Relations 16 2.3 The Organisation of Eastern Caribbean States 19 2.3.1 The Competitive Business Unit 30 iv 2.3.2 The Tourism Unit 30 2.3.3 The Trade Policy Unit 31 2.4 Trade Agreements Pertaining to European – OECS Trade 31 2.4.1 The Lomé Trade Agreements 31 2.4.2 The Cotonou Agreement 33 2.4.3 The Economic Partnership Agreement 35 2.5 The Liberalization of Trade in Services – Multilaterally and in the Caribbean 36 2.6 The Treatment of Tourism in the CARIFORUM EU EPA 51 2.6.1 Commitments Made by the OECS EPA Signatories Regarding the Tourism Service Sector 54 2.6.1.1 Hotels and Restaurants 55 2.6.1.2 Hotel Development 56 2.7 Tourism in the OECS 59 2.7.1 Caribbean Tourism Source Markets 66 2.7.2 The Caribbean Tourism Product 68 2.7.3 Caribbean Tourism and Foreign Investment 69 2.8 Conclusion 75 Chapter 3 Trade Theories 76 3.1 Introduction 76 3.2 International Trade Theories and Regional Trade Theory 77 3.2.1 Absolute Advantage 77 3.2.2 Comparative Advantage 78 3.2.3 Heckscher Ohlin Theory 79 3.2.4 The Product Life Cycle Theory 82 3.2.5 The Applicability of Classical and Neoclassical Trade Theories to Trade in Services 84 3.3 Regional Trade Theory 87 3.4 New Trade Theory 98 3.5 New Regionalism 101 v 3.6 New New Trade Theory 103 3.7 Conclusion 107 Chapter 4 Theories of Foreign Direct Investment and Tourism Demand 109 4.1 Introduction 109 4.2 Microeconomic Theories of FDI 110 4.2.1 The Portfolio Theory 111 4.2.2 The Theory of Firm Specific Advantages 112 4.2.3 The Theory of Oligopolistic Reaction 113 4.2.4 The Theory of Internalization 114 4.2.5 The Product Life Cycle Theory 117 4.2.6 The Appropriability Theory 117 4.2.7 The Eclectic Theory 119 4.3 Macroeconomic Theories of FDI 122 4.3.1 The Theory of Economic Geography (The Theory of Location) 122 4.3.2 The Currency Area Theory 125 4.4 Theories of the Multinational Enterprise 127 4.4.1 The Vertical Foreign Direct Investment Model 127 4.4.2 The Horizontal Foreign Direct Investment Model 128 4.4.3 The Knowledge Capital Model 133 4.5 Theories Pertaining to Tourism Demand 134 4.5.1 The Theory of Consumer Behaviour 136 4.5.2 Lancaster’s Theory of Consumer Behaviour 141 4.6 Conclusion 142 vi Chapter 5 Literature Review 145 5.1 Introduction 145 5.2 The CARIFORUM EU Economic Partnership Agreement – Welfare and Fiscal Effects 147 5.2.1 The CARIFORUM EU Economic Partnership Agreement – Trade in Services 153 5.3 The Liberalization of Trade in Tourism Services 160 5.3.1 The Constitution of the GATS 160 5.3.2 The Implications of the GATS for the Tourism Sector 161 5.3.3 The Impact of GATS on Sustainability Practices 168 5.3.4 The Liberalization of Trade in Tourism Services – The New Issues 170 5.4 The Liberalization of Trade in Tourism Services in the Caribbean 172 5.5 Tourism in the Caribbean 2000 to the Present 176 5.5.1 Tourism as a Development Strategy 176 5.5.2 Tourism Competitiveness 176 5.5.3 Tourism Services Negotiations 178 5.5.4 Tourism and Economic Growth 178 5.6 The Liberalization of Trade in Services in the Caribbean 181 5.7 Foreign Direct Investment in the Eastern Caribbean 184 5.7.1 Agriculture 184 5.7.2 Sustainable Development 185 5.7.3 Tax Concessions 185 5.7.4 The Impact of Foreign Direct Investment Flows 186 5.8 Tourism Related Foreign Direct Investment in the Caribbean 187 5.8.1 The Effects of Policy Implementation 187 5.8.2 Tourism Related FDI in Caribbean Small Island Developing States 189 5.9 Tourism Demand in the Caribbean 192 5.10 Conclusion 201 vii Chapter 6 Examining the Determinants of Tourism Related Foreign Direct Investment 204 6.1 Introduction 204 6.2 Theoretical Framework 209 6.3 Data and Methodology 210 6.4 Results 219 6.5 Conclusion 227 Chapter 7. Liberalizing Trade in Tourism Services and Its Effect on European Tourism Demand 228 7.1 Introduction 228 7.2 Theoretical Framework 231 7.3 Data and Methodology 233 7.4 Results 240 7.4 Conclusion 246 Chapter 8 Conclusion 247 Bibliography 252 Appendicies 303 Appendix 1 Literature on the CARIFORUM EU EPA 303 Appendix 2 Data Regarding OECS EPA Signatories Human Development Index, Land Use, Sectoral Contribution to GDP and Socio Economic Indicators. 311 Appendix 3 List of Tourism and Travel Related Services Commitments, Hotels and Restaurants and Other Services of the Signatory CARIFORUM States. 313 Appendix 4 ECCU FDI By Sector – Percentage Share 1997-2002 317 Appendix 5 Assumptions of the Main Trade Theories 318 viii Appendix 6 Types of Regional Integration Arrangements 320 Appendix 7 Studies of Tourism Demand Concerning the Caribbean 321 Appendix 8 Caribbean Tourism Relative Contribution and Regional Ranking 2017 322 Appendix 9 Literature on Tourism Related Foreign Direct Investment 1991-2018.