Service Exports and Economic Growth in an Oil Rich Economy: A Case Study of Tourism in Trinidad and Tobago (T&T)

• Author: Bhoendradatt Tewari/Roger Hosein
• Pages: 217-242

Chapter 8

Service Exports and Economic Growth in

an Oil Rich Economy: A Case Study of

Tourism in Trinidad and Tobago (T&T)1

This chapter represents a first attempt at exploring the issue of causality

between tourism export growth and economic growth for T&T. The

paper outlines the possible avenues through which tourism export growth

could positively impact upon economic growth and then proceeds to

detail the current state of the T&T tourism market. In particular, it

demonstrates that the T&T economy is the fastest growing in the

Caribbean region. Evidence from cumulative experience functions and

correlation estimates suggest that causality exists and runs from tourism

export growth to economic growth. Such indicative evidence, however,

is not complemented by more robust Granger causal estimates.

This was the first article on which the authors of this volume

collaborated. The article itself was first published as part of the Research

and Working Paper Series, of the Faculty of Social Sciences, The

University of the West Indies, St. Augustine in October 2001 and

subsequently in the Journal of Eastern Caribbean Studies, Vol. 29, No.

1, March 2004, pp. 42–68.

1 The authors wish to acknowledge the research assistance of Rishi Singh.

Trade, Investment & Development

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8.1 INTRODUCTION

In this study an attempt is made to gauge the impact of tourism on the

economic growth process of T&T.2 It commences by providing an

exploration of the various avenues through which tourism could

positively or negatively impact upon economic growth. Sections 8.2–8.3,

consider some past studies that explored the link between export growth

and economic growth whilst the next section spells out some

characteristics of the T&T tourism market. In section 8.5 a theoretical

discussion on the direction that causality results can take are stated,

whilst in section 8.6 various data deficiencies and indicative and Granger

causal evidence are provided on the relationship between tourism exports

and economic growth. Section 8.7 concludes the paper.

8.2 TOURISM AND ECONOMIC DEVELOPMENT3

8.2.1 Positive Contributions of Tourism to Economic

Growth

The relationship between tourism and economic development is an

important one for policymakers, planners and researchers in countries in

which tourism plays an important role within the social and economic

fabric of society. One key impact of tourism is the extent to which it can

help to ease balance of payments constraints. In the context of the two-

gap model, tourism can provide valuable foreign exchange which can be

used to import capital goods necessary for the economic development of

the host nation (Lea, 1988).4

Tourism activity can also bring into ‘commercial’ use formally

unemployed resources from which the host economy can derive rents.

When tourists visit a country the portfolio of goods and services, which

2 As early as 1949, Caribbean Noble Laureate, Sir Arthur Lewis argued that given

rampant levels of unemployment in Caribbean economies (both open and disguised) the

tourism industry had the capacity not only to contribute a robust supply of valuable

foreign exchange but also to boost employment levels.

3 In 1963 the UN defined a tourist as a temporary visitor who spends more than 24 hours

in a place other than their normal place of residence and their purpose is primarily for

holiday making, business, study, visits to friends and families, medical or religious

reasons.

4Of course one has to be careful to note that if the tourism sector is heavily dependent on

foreign inputs then the net income outflow can invalidate any positive contribution that

the sector makes to the BOP. This is generally referred to in the literature as the extent of

the leakage or linkage.