Monday, May 05, 2008

On the Use and Abuse of Tourism Satellite Accounts

I posted a link to my blog post on Tourism is Not the World's Largest Industry! to the TRINET email discussion list, which is the largest email list for tourism academics worldwide. It generated a fair amount of discussion. One of the arguments used to support the importance of tourism as an industry was the Tourism Satellite Accounting system, which estimates the total economic and employment impact of tourism, taking into account the proportions of other industries that rely on tourism and travel in some way. (A satellite industry is any industry that is no part of the traditional core industries that comprise the System of National Accounts, which is the economic data commonly collected by all countries.)

An example of the statements that people made based on the TSA is seen in this post, which was also emailed to, and reposted on, eTurboNews:
  • May 05, 2008: eTN Mailbox: Tourism is NOT the world's largest Industry, so stop saying it is!

    "Tourism is not an industry in the definition of "industry" as per the System of National Accounts (SNA) the measure of contribution to an economy (GDP). Tourism is a consumption group (all tourists, domestic & international) and hence the set up of the TSA, (Tourism Satellite Account) which is apart from SNA but draws data from SNA.

    So when one says one should exclude transport for example when comparing Tourism to say Transport, one of the worlds biggest industries, one is denying the contribution towards transport made by Tourism (consumption group) By definition Tourism overlaps a number of industries and is a combination of partial outputs of many industries. most only partially associated with tourism. Put another way, if Tourism consumption were to cease, this will result in a reduction of the output of a number of industries, the biggest of which is probably the transport industry.

    The development of the TSA has been very important in understanding the economic impact of an "industry" defined by tourists and their consumption for the 'industry' in getting recognition by the community and public sector, for planning purposes.

    At the end of the day, it might not be the biggest industry in the world, but it is one of the biggest both as an employer and economically speaking. We could not say this with confidence prior to the TSA."

    (Click Here to see the original article on eTurboNews.)

Well, I think we could easily say that tourism is one of the largest industries in the world prior to the TSA system. The World Trade Organization data clearly shows this, and their data is based on the System of National Accounts (SNA), which is the core economic data collected by each country. In addition, I am not sure who wants to exclude passenger transportation from tourism, though I would argue for excluding cargo transportation, as I did in my previous post.

Anyway, in response, I posted my own assessment of the Tourism Satellite Accounting System.
  • "Well, of course I have my issues with how people use the TSA, as well...

    The TSA approach provides alternatives to traditional GDP and employment calculations, and which is probably more accurate in estimating the economic role of passenger travel and tourism in an economy. The best source [that I have seen] for understanding how this is done is this publication from the WTTC:

    There are a couple of caveats to this approach. First, while it is based on the best available data, there are holes in that data and assumptions must be made on how to fill those holes. These assumptions may or may not be valid in reality.

    , the data only looks at travel and tourism. It does not provide a comprehensive input-output model that compares travel and tourism (however it is defined as a partial industry) to other industries. Given the fuzzy nature of the partial-industries that the satellite accounting system is designed to address, I am not sure how this could ever be done. But more importantly, it means that you can not say that travel and tourism is the largest industry, or that it is second or third etc., based on the satellite accounting system. You can not compare the results of a TSA exercise with the results of GDP exercise based on traditional national accounts. They are related, but different beasts.

    What you would need to do is to run a satellite accounting exercise on other industries, some of which may claim large parts of the core of passenger transportation and tourism -- which I think would decrease the totals that people are currently coming up with in the TSAs. Short of that, you can only say that t+t makes a certain contribution to a certain economy based on certain assumptions.

    A quick review on Google found that Tourism appears to be the only partial-industry that has whole heartedly adopted the satellite accounting approach. The only other hits that come up are suggestions to use the satellite accounting approach to develop a green accounting model.

    As I said before, please let me know what I am getting wrong here.

    Cheers, Alan"
To further clarify the limits of the TSA, let's say you want to compare Tourism with Food and Entertainment and Education. All of these are what Neil Leiper (2008) refers to as "partial industries" because they all overlap (see reference below). You can come up with a total economic impact for tourism, using the TSA, but that number includes portions of Food (e.g., restaurants), Entertainment (e.g., amusement parks), and Education (e.g., museums). But a Satellite Accounting System for each of those industries would also include profits and employees that are in the tourism economy. This is why adding up the total profits and employees of all possible industries would probably 10 to 100 time larger than the real economy - depending on how the different industries are identified and defined.

Furthermore, I would guess that a satellite accounting system for Food would result in economic and employment impacts at least as large as tourism, if not larger. It all depends on definitions. Food could include all agricultural production, investments and transportation, along with all places and ways that food is sold and served, and portions of all other businesses that support the production, selling, transport and disposal of food in the world. Also included would be research and development of food, dietitians and other medical and quasi-medical diet clinics, food related television shows and books, and everyone employed in all of these roles. This is a huge economy and has a huge overlap with tourism.

My conclusion is that a satellite accounting system should NEVER be used to compare one industry with another because: (1) defining the boundaries of a satellite industries is subjective, flexible and easily changed; (2) anything can be defined as a satellite industry; and (3) the overlap between satellite industries varies and is not taken into account when comparisons are made.

TSA numbers can be used to benchmark industry changes over time, if definitions are fixed and not changed. They can also be used to see the degree to which tourism overlaps with different sectors of the economy. These are valuable planning tools. But, the TSA can not be used to claim that tourism is larger than any other specific industry, because under the satellite accounting system approach, each industry has a different definition.

One respondent in the "NOT Largest Industry" discussion on TRINET stated:
  • "TSA provide insights into where tourists spend, the extent to which different sectors gain from tourist spending, and the extent to which individual sectors are dependent upon tourism.TSA can serve as a medium for public information helping to raise awareness of tourism and its contribution to national economies. They help tourism stakeholders to better understand the economic importance of this activity; and by extension its role in all the industries involved in the production of goods and services demanded by visitors. TSA thus help to legitimize or give credibility to the tourism industry as a main economic sector in the minds of politicians and the general public."
And another person stated that:
  • "The technique is good but without the data it comes back to the rubbish in rubbish out syndrome. Also TSAs may show the significance of tourism they do not show the economic impact of tourism - for this you need the input-output model or CGE. But more fundamental to whatever model is used, the data collected relating to tourist expenditure globally is generally poor and without that the estimation of the size of the industry is impossible."

But I am still puzzled as to why passenger travel and tourism is the only industry that is using the satellite accounting approach to measure its impact...

PS: the following two related readings was posted in the TRINET discussion list:
UPDATE (6May08):

The following list was sent to me today. These are a sampling of items that are included in the WTTC's calculation of the Global Tourism Satellite Account, collected from the WTTC document cited above. They demonstrate the subjectivity and arbitrary nature of the satellite accounting approach, and what the sender called "the WTTC-everything-and-the-kitchen-sink method of estimating the contribution of travel and tourism to the global economy."
  • 100% of boats with motor (even though the boat owner may never travel beyond the 50 mile distance perimeter, which is the criterion for being classified a 'traveler.')
  • More than 29% of all towing charges
  • More than 35% of all VCR and video disk players
  • Almost a third (29%) of all vehicle purchases and vehicle insurance
  • More than 38% of all treadmills (sports, recreation and exercise equip)
From the document: "Because the Federal Railroad Administration runs Amtrak, its entire budget was also counted as 100% Travel & Tourism."
  • US Federal Aviation Administration 89.70%
  • US Federal Highway Administration 22.47%
  • US Federal Railroad Administration 100.00%
  • US National Park Service 100.00%
  • US Fish & Wildlife Service 100.00%

[All of the above was also posted on the New Economics of Tourism (N.E.T.) Blog]


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