Thursday, May 01, 2008

Tourism is NOT the World's Largest Industry - So Stop Saying It Is!

It is the end of the semester and I am marking term papers. Few things drive me more crazy in doing this than coming across quoted and cited claims that tourism is the world's largest industry. Tourism is NOT the world's largest industry.

Tourism actually ranks about 6th in international trade, after trade in fossil fuels, telecommunications and computer equipment, automotive products, and agriculture (based on World Trade Organization data). It is just slightly smaller than agriculture, and given the fuzziness of all numbers of this kind, tourism at best might be 5th, just ahead of agriculture.

Tourism is the world's largest Service Sector Industry, in terms of international trade, as all of the other industries listed above are merchandise product industries. Note that this is for international trade and does not include domestic trade -- data for which is extremely variable from one country to the next. Also, there is no Tourism Industry in the World Trade Organization's data. Instead, I came up with an estimate of the Tourism Industry (see below) based on data for the (1) Travel Services, (2) Transportation Services, and (3) Personal-Cultural-Recreation Services.

For details, I provide the following from a draft version of a textbook that I am working on related to tourism impacts and tourism planning (should be out in late Summer/early Fall 2008). If someone can conclusively demonstrate that the analysis below is not correct, I will be grateful. ...

The travel and tourism industry is the world’s largest commercial service sector industry. The World Trade Organization (WTO, not to be confused with the UN World Tourism Organization (UNWTO)) is the leading international body that monitors international macroeconomic data. The data follows the value of imports and exports between countries and across major economic sectors that are grouped into either Merchandise or Commercial Services.
Travel and tourism are part of the WTO’s Commercial Services group, but is not encompassed under a single category. Intead, the WTO includes a Transportation category and a Travel category. The WTO defines these categories as:

  • Transportation covers all transportation services that are performed by residents of one economy for those of another and that involve the carriage of passengers, the movement of goods (freight), rentals (charters) of carriers with crew, and related supporting and auxiliary services. (United Nations et al. 2002: 36)
  • Travel covers primarily the goods and services acquired from an economy by travellers during visits of less than one year to that economy. The goods and services are purchased by, or on behalf of, the traveler or provided, without a quid pro quo (that is, are provided as a gift), for the traveller to use or give away. In addition, a traveller is an individual staying for less than one year in an economy of which he or she is not a resident for any purpose other than (a) being stationed on a military base or being an employee (including diplomats and other embassy and consulate personnel) of an agency of his or her government, (b) being an accompanying dependent of an individual mentioned under (a), or (c) undertaking a productive activity directly for an entity that is a resident of that economy. (United Nations et al. 2002: 38-39)
Although the WTO data includes both imports and exports, this discussion focused on exports as, from a destination community perspective, they have a more direct visible impact on a destination’s economy although in macroeconomic terms they are of equal importance. For tourism, exports are the receipts that a country received from the money that tourists spend at the destination (as discussed above), while imports are the expenditures that residents make when they travel outside of their home country. The difference between the two is called the tourism balance of trade or tourism balance of payments. In the case of the EU for example in 2005, tourism expenditure and receipts were nearly in balance with expenditure of €235.6bn, and receipts from tourism of €232.6bn. About two-thirds of EU Member States were in surplus. A measure of the economic significance of tourism to the countries concerned is that receipts exceeded expenditure by a factor of two or more in Greece (4.5), Spain (3.2), Malta (2.8), Portugal (2.6) and Cyprus (2.5) (European Communities 2007).
In 2006 Transportation Services (not all of them carrying tourists) accounted for 22.9% of international exports in commercial services, while Travel Services (mostly the hospitality industry, and excluding transportation) made up 27.1%. Compared to other commercial service sectors, the Travel Services sector has steadily declined in its relative importance since 2000 when it accounted for 32.1% of international exports in services. Transportation Services have remained roughly stable over that time period. All other Commercial Services (including communications, construction, finance, insurance, recreation, and computer services) comprised the balance of service sector trade (see also Coles and Hall 2008).

There were 704 million air passenger trips taken in 2006, and air and sea passengers together accounted for about 25% of the Transportation Services sector, though regionally it ranged from 20.1% in the EU to 33.3% in the US (WTO 2007b). The rest of this sector is mostly freight transportation. In addition, a record 842 million international travelers spent a record US$745 billion in 2006 (WTO 2007a, 2007b). International tourist receipts grew 9% in 2006 over 2005, and while not the fastest growing sector in international trade, its steady growth and relatively low entry costs make tourism an attractive option for countries and communities seeking to develop the service sector of their economies to expand job opportunities.

A Tourism Sector can be estimated from the WTO data for Travel Services, passenger Transportation Services (excluding freight), and the recreation portion of the Other Commercial Services sector. Together, this Tourism Sector makes up a third of all commercial services, and about 6.4% of all international exports, including merchandise products. The Tourism Sector is the sixth largest sector of the global economy based on the WTO’s categories, following trade in fossil fuels, telecommunications and computer equipment, automotive products, and agriculture (WTO 2007a, 2007b).

(This is also posted on the New Economics of Tourism, N.E.T. blog)

UPDATE (3May08):

I recently got my hands on some financial projections for 2008 from the World Travel and Tourism Council (WTTC, an international lobbying group mostly for airlines and hotels -- at least that is how I define them). They estimate that travel and tourism will comprise:
US$2,008 billion in 2008, which would be 3.4% of total global GDP
- This is about twice the total of US$916 billion for 2006 that I came up with above, though only about half the global percentage.
My number of $916 billion in 2006 is only for international trade, not for GDP, and not for domestic tourism and travel. So a doubling of my number to include domestic travel makes a fairly rough estimate of the total global size of the travel and tourism economy in dollars (or any other currency). (The World Tourism Organization, UNWTO, estimated that 15.8% of all overnight trips in 2005 were international, while the remaining 84.2% were domestic. Domestic trips typically involve lower per/person/day expenditures.)

However, the WTTC also uses what is known as the Satellite Accounting approach, which tries to estimate the degree to which other economic sectors contribute to and benefit from tourism and passenger transportation. Based on that approach, they estimate that in 2008, travel and tourism will comprise US$5,890 billion, or 9.9% of total world GDP.

A couple of caveats need to be considered here. First, the WTTC never clearly shows how it comes up with its numbers. I have been trying to find this, and have even emailed them requesting it. So I am not convinced that their numbers are anything more than very rough estimates. [UPDATE 6May08: I did find information on this, which is linked to a separate blog post on Tourism Satellite Accounts. However, I did not change my opinion of TSAs, which you can find more information on in that other post.]

In addition, my sense is that when an industry adopts a satellite accounting system (which originated in France as an attempt to show the size on non-traditional industries), that they approach this by basically keeping all their original core data, and then grabbing portions of sectors that are near them. As a result they all end up with larger numbers and larger percentages. Other economic sectors do the same, grabbing part of the core travel and tourism industry that might be better placed in financial services or advertising industries. In the end, of course, this all adds up to well over 100%, which can be addressed in an all-encompassing input-output model. But it is unclear to me that the WTTC, and others who use the satellite accounting system, take that broader perspective.

Now I could be totally wrong on this, but I have yet to see someone explain it with real numbers in any other way. So, I suggest that you take the $6 billion and 10% GDP numbers with a huge rock of salt -- and be wary of using it in any term papers that you submit in my classes.

UPDATE (4May08):

Sat, May 3, 2008 at 9:03 PM, Neil Leiper wrote (reposted here with permission):

G'day Alan

Tonight I read your item entitled "tourism is NOT the 'world's largest industry' ". Well Done! Tourism academe would be improved if there were more professors like yourself who can not only see thru the feeble-minded nonsense put about by WTO & its acolytes (in academe - notably dim-witted textbook writers, in government, in consulting, in the media) but are willing and able to challenge them in this manner!

I urge you to go further, please.

Tourism is not "an industry". Attempts to pin it down in that way are doomed to failure and every attempt I've seen is pathetically weak. Tourism is like all the other "isms". It's a form of human behaviour and the theories and ideologies that shape it. C/F idealism, communism, heroism etc.

As such, tourism is supported, partly, by distinctive industries - we can reasonable and realistically call them 'tourism industries'. They do not sum to one distinctive industry. See my article on plural industries which is in press at "Tourism Management". It dissects all known theories that might support the concept on one giant tourism industry and concludes that they are all defective, but various concludes that many tourism industries exist; each a collection of business organisations, some large and complex, most small and simple, some overlapping.

In fact you (anyone) can listen to my conference presentation on that topic. It's on the internet, recorded at CAUTHE 2006 by Martin Fluker in Melbourne. I don't have the site on hand, but I recall it's titled "Professor Leiper expounds ...".

I note above that tourism (the beahviour of tourists) is supported PARTLY by distinctive industries. It's always like that. It's a partially industrialised phenomenon. Like sex. Like sport. Like education, etc.

See a paper in press at Current Issues in Tourism ("Partial Industrialisation in Tourism: A New Model", by Neil Leiper, Lloyd Stear, Nerilee Hing and Tracey Firth. As you will see, it has detailed theoretical discussion, plus empirical evidence, from three researchers who have tested my theory of PIIT.

I put a note about these papers on the tourism strategic management discussion site set up by Fevzi. In the few months since, there has not been a single comment!! Is this more evidence of intellectual decadence in tourism academe? Or is it too soon to tell?

Neil Leiper
Southern Cross University


...And separately, Click Here for a recent news article that also states the world's largest industry claim.


Update: 30 April 2012

The WTTC recently commissioned a study to, yet again, prove to policy makers that tourism is a really big deal (see their press release here: Travel and tourism larger industry than automotive manufacturing); and on more on the website here). 

The problem is that the tourism "industry" is so diverse that almost any activity remotely related to travel and hospitality can be considered all or part of it.  In addition, comparing service industries to manufacturing is wrought with challenges (even though I do that myself, above), and is not recommended by the WTO (World Trade Organization), which compiles most of the international trade data for the world.  In addition, the Tourism Satellite Accounting System, which the WTTC often relies very heavily on, is inherently unsuitable for comparison across political boundaries and across industries.

Anyway ... yes, I fully agree that tourism is a huge economic activity that just continues to grow despite economic upheavals across the globe.  However, I caution everyone to be cautious in accepting the results of any study that tries to compare tourism economic activities with other industries at a global or even regional scale. 



Unknown said...

I think you did not take into account what we call the "Hospitality
Industry", encompassing hotels, airlines, meetings, cruises, tours,
(individual, group, eco, special needs, etc).
I am not sure yu took into account, not only the people travelling or buying "gifts", but
the people who work in the industry.

I may have read your account incorrectly, but in most counttries,
especially outside of the U.S.,
"tourism" brings in the do re mi and
is king.

However, if Tourism is 5th leading,
that is very good and still deserves mention without the
derogatory remarks. Ordinary and extraordinary
people work in this industry and
may have more people working in it
than all of the others combined.
This is not scientific but one that seems to have common sense.

Linda Contract
Santa Monica CA

yanth said...

hi.. I am a tourism student of one of the universities in Visayas.. and this blog really help me understand what tourism is all about.. =D thanks

Datos y Numeritos said...

Good account on the accounting of tourism indutries. It took me few minutes to gather some date to question the real size of this activity.

bmackie said...

Thanks for this - I too am marking term papers and this claim raised questions for me which your site answered so quickly.Appreciate!!

Unknown said...

There is no such thing as "tourism" ... properly viewed there are three segments to the "industry" all of which are served through a specific distrubution chain with buyers and sellers .... 1) VFR - visiting friends and neighbors- is the strongest of the motivators; 2) COMMERCIAL and TECHNICAL TRAVEL encompasses sutdents going to school, salesmen selling goods, professionals attending seminars ... and 3) AH YES, LEISURE TRAVEL - ok you can call it tourism.

The fact is that travel is the "global industry" with the worst stats. And what about related "industries" not tallied in discussins of size ... does the aviation industry build those planes just to fly empty? And cruise ships, moeny spent in hotel construction, payroll, shopping, etc.

Bottom line is that there is no one who can reasonably estimate global economic impact nor spending for travel ...

Who's is the biggest doesn't really count when no onme has produced an adequate measuring stick!