**Economic Impact Analysis - Computable General Equilibrium
Methodology -
Lake State Examples -
Other Examples
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Methodology:

This paper argues for the use of computable general equilibrium (CGE) modelling over input-output modelling in tourism economic impact analysis research. It points to the unrealistic assumptions involved in input-output analysis, which results in models that account for only the

positiveinfluences on economic activity and ignor thenegativeinfluences. Input-output models may even miss the impact direction - positive vs negative - altogether. CGE modelling recognises the integrated aspect of different economic sectors and tries to model the effects on the economy as a whole. CGE modelling techniques have progressed substantially over the past few decades and their application to tourism research is now more feasible. The authors reject the claims that this technique is necessarilly more expensive, that is produces similar results to input-output analysis or that its assumptions entail the same pitfalls as in input-output analysis. The authors do allow that input-output analysis may be appropriate when examining the local economic impacts, but suggest CGE models are much more appropriate if the researcher is interested in regional or statewide impacts.

Mules, T. 2000. Globalization and the Economic Impacts
of Tourism. *Tourism in the 21st Century: Lesson From Experience*. B.
Faulkner, G. Moscado and E. Laws (ed.), London, Continuum**: **312-327.

The chapter deals with methods of economic impact analysis in the context of global tourism. In particular, the chapter compares and contrasts the use input-output models with computable general equilibrium (CGE) models. The author concludes that due to the restrictive assumptions of input-output models, they may only be applicable to an analysis of small economies. In many cases input-output models may actually overstate the impact of tourism or a particular event on the state economy. The author advocates the use of CGE models, particularly in the age of a globalized economy, as they can handle such aspects as exchange rates and imports. However, CGE models require more comprehensive data sets and their application can also be fraught with restrictive assumptions.

Zhou, D., J. F. Yanagida, U. Chakravorty and P. Leung. 1997. "Estimating
Economic Impacts from Tourism." *Annals of Tourism Research* **24**(1):76-89.

This study compares the results of an analysis using input-output modeling and computable general equilibrium (CGE) modeling to estimate the economic impacts from tourism in Hawaii. The study concludes that the results of the input-output analysis are similar in magnitude to those of the CGE, but generally higher. This is likely due to the fact that the CGE model allows for resource reallocation while the input-output model does not. The CGE model is more flexible than input-output analysis and this study demonstrates the value of its use in tourism economic impact analysis.

Blake, A., R. Durbarry, M. T. Sinclair and G. Sugiyarto.
2001. *Modelling Tourism and Travel using Tourism Satellite Accounts and
Tourism Policy and Forecasting Models*. Discussion Paper 2001/4. Nottingham,
UK: Tourism and Travel Research Institute, University of Nottingham.
http://www.nottingham.ac.uk/ttri

This paper documents the results of research using the Nottingham Tourism Policy and Forecasting (TPF) model, to analyse tourism in the United States. This model is based on Computable General Equilibrium (CGE) modelling techniques and incorporates Tourism Satellite Accounts (TSAs) as the fundamental data input. The paper provides a detailed description of the structure, equations and scope of the model. TSAs are used to measure the size of the tourism economy while traditional input-output models go some way towards measuring the total economic impact of tourism. CGE modelling, and the Nottingham TPF in particular, allow for a more comprehensive analysis of tourisms economic impact. The Nottingham TPF model can also be used to answer "what-if" policy simulations or be used in tourism forecasting. The authors illustrate three uses of the TPF model: a 10% increase in foreign expenditures on tourism; a 10% increase in Air Transport Productivity; and the removal of indirect taxes and replacing them with non-distorting taxes.

Blake, A., M. T. Sinclair and G. Sugiyarto. 2001. *The Economy-Wide Effects
of Foot and Mouth*. Discussion Paper 2001/3. Nottingham, UK: Tourism and
Travel Research Institute, University of Nottingham.
http://www.nottingham.ac.uk/ttri

This paper details the results of analysis using the Nottingham Model of the United Kingdom economy, which consists of Computable General Equilibrium (CGE) model linked to a Micro-Regional Tourism Simulation (MRTS) model. The model includes production relationships for 115 sectors of the economy and markets for 115 goods and services. The authors analyze the impact of the foot and mouth disease outbreak on the tourism economy and the United Kingdom economy as a whole. Significantly, the study concludes that the foot and mouth disease outbreak will have a much more significant impact on the tourism industry than on the agriculture industry. The authors conclude that a CGE model is useful for examining the economic impacts of shock events, like the foot and mouth disease outbreak, and to use the results to guide policy decision making.

Alavalapati, J. R. R. and W. L. Adamowicz. 2000. "Tourism Impact Modeling for
Resource Extraction Regions." *Annals of Tourism Research* **27**(1):188-202.

This study use a computable general equilibrium approach to model the interactions among tourism, other sectors and most pointedly, the environment. Addressing a gap in the economic impact literature, the authors look to develop methodological framework that allows for specific linkages with the environment. A few simple hypothetical scenarios are used to illustrate the value of such a modeling approach.

Adams, P. D. and B. P. Parmenter. 1995. "An Applied General Equilibrium
Analysis of the Economic Effects of Tourism in a Quite Small, Quite Open
Economy." *Applied Economics* **27**:985-994.

In this paper, a computable general equilibrium model is used to project the effects of tourism on the industrial and regional structures of the Australian economy. The most striking conclusion is that the State of Queensland economy, usually thought to be the most tourism-oriented of the Australian states, would be a net loser from an economy-wide expansion of tourism. The key to understanding this result is to note that, as well as having a relatively large share of its GSP accounted for by tourism-oriented activities, Queensland is also relatively export dependent on agriculture and mining, traditional export sectors which are crowed out by expansion of international tourism. The results reported in the paper demonstrate how the use of a computable general equilibrium model can facilitate conclusions about the structural effects of an expansion of international tourism.