A comparative study of the economic impacts of tourism investment on selected economies of APEC region

Abstract

With the growing recognition of the economic and social importance of the tourism industry by national governments, both public and private sectors are paying more attention to tourism development through capital investment. Foreign direct investment is seen by many countries as a valuable source to assist the growth of this lucrative industry. In the APEC economies, policies have been formulated to attract foreign investment throughout the region. However, macro-economic evaluation to justify foreign direct investment into the national economy is lacking. This study examines the economic impacts of foreign direct investment on three APEC economies at three levels of development: Australia as a developed economy, China as a developing economy and Hong Kong as a newly-industrialised economy. It is perceived that the overall performance of foreign direct investment is related to and constrained by many identifiable variables in the host economy. Thus, the economic outcomes might vary from one economic category to another. The economic impacts demonstrate the net benefits of foreign direct investment to the host economy on a macroeconomic level. The net benefits are measured on commensurate and incommensurate basis in order to project a panoramic picture of the economic impacts. A comparative cost-benefit framework is provided. The commensurate impacts are measured by a multiplier analysis. Quantitative indicators include output, personal income and employment. Foreign exchange leakage effect is also conceptualised. Incommensurate impacts are analysed in terms of foreign direct investment's impacts on the industrial structure of the tourism industry and technology transfer to the host economy. The findings of the study suggest that foreign direct investment is more efficient in terms of output multiplier effect in a more developed economy, but it has a more positive effect on personal income of the tourism employees in a less developed economy. The level of foreign exchange leakage is subject more to the ability of the host economy to meet the input requirements of the tourism industry rather than the level of economic development. The study finds that foreign direct investment is likely to build up horizontal integration in a less developed economy to exploit economies of scale, while it also builds up vertical integration in a more developed economy to capture economies of scope. However, at least in the three economies examined, the level of integration resulted from foreign direct investment is unlikely to cause monopoly in the tourism industry. In terms of technology transfer, foreign direct investment appears to be more likely in the form of equity investment in a less developed economy, while it is more likely to be in the form of contractual arrangement in a more developed economy. The study is a useful experiment to apply cost-benefit analysis to the measurement of the economic impacts of foreign direct investment in the tourism industry and it proves that cost-benefit analysis is a practical and proper tool for such aims.