Tourism inter-industry linkages in the Lao PDR economy: an ...

Tourism inter-industry linkages in the Lao PDR economy aninputndashoutput analysis

Author

Khanal Bhoj Raj Gan Christopher Becken Susanne

Published

2014

Journal Title

Tourism Economics

DOI

httpsdoiorg105367te20130255

Copyright Statement

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Tourism Economics 2014 20 (1) 171ndash194 doi 105367te20130255

Tourism inter-industry linkages in the LaoPDR economy an inputndashoutput analysis

BHOJ RAJ KHANAL

Department of Economics and Finance Faculty of Commerce Lincoln University NewZealand and Lutheran World Federation Nepal PO Box 3330 MaharajgunjKathmandu Nepal E-mail bhojrajkhanalgmailcom (Corresponding author)

CHRISTOPHER GAN

Department of Economics and Finance Faculty of Commerce PO Box 85084Lincoln University Lincoln 7647 Canterbury New Zealand

E-mail christopherganlincolnacnz

SUSANNE BECKEN

Griffith Business School Griffith University Australia and Faculty of EnvironmentSociety and Design Lincoln University New Zealand E-mail sbeckengriffitheduau

This paper studies the significance of economic linkages between theLao PDR tourism sector and the rest of the economy An inter-national visitorsrsquo expenditure survey and inputndashoutput models wereused to disaggregate tourism economic data from the economy Aseries of approaches was then employed to construct inter-industrylinkage measures The results reveal a rising trend in tourismrsquoslinkages with the countryrsquos economy from 2003 to 2008 indicatingan increase in the tourism sectorrsquos dependency on the rest of theeconomy The key sectors are food and beverages manufacturingwholesale and retail trade agriculture and livestock and tourismndash these sectors dominated the economy during 2003ndash2008 Theresults provide evidence that the Lao PDR tourism sector is a keysector in enhancing economic growth and enabling the country tobe one of the fastest growing economies in the Greater MekongSubregion

Keywords inputndashoutput analysis inter-industry linkages key sectorLao PDR

The authors would like to thank the anonymous referees for their comments and suggestions forimproving the paper

TOURISM ECONOMICS172

Table 1 Key tourism indicators of the Greater Mekong subregion countries 2010

Country Tourism GDP Tourism exports Tourism jobs Tourism GDP growth() () () ()

Cambodia 184 268 143 49China 92 33 77 65Lao PDR 115 155 92 27Myanmar 57 12 52 45Thailand 139 108 104 16Vietnam 124 67 99 34GMS Average 119 107 95 39

Source World Travel and Tourism Council (2010) reports of the six GMS countries

Over two million international tourists visited the Lao PDR in 2010 gener-ating US$313 million in tourism receipts (LNTA 2010) The World Travel andTourism Council (2010) estimated that tourism contributed 115 to the LaoPDRrsquos GDP in 2010 which is similar to the Greater Mekong Subregion (GMS)average contribution (see Table 1) The tourism exports of Lao PDR were155 the second highest among the GMS countries following Cambodia at268 The tourism sector in the Lao PDR generates about 92 of employmentIn 2010 the GDP growth of the tourism sector was expected to be 27 inthe Lao PDR compared with 39 average in the GMS (ADB 2008)

The volume of tourism receipts increased threefold between 2003 (US$87million) and 2008 (US$276 million) with an average annual growth of 229(LNTA 2009) The economic growth of the country as a whole has acceleratedin the last eight years at an average growth rate of 7 per annum and with8 in 2008 (UNWTO 2008) Despite tourismrsquos fast growth during the lastdecade in the country there has been no quantifiable analysis of the Lao PDRrsquostourism sector linkages with the other economic sectors No previous researchhas analysed tourismrsquos economic linkages and the structural changes in Lao PDRusing econometric models For future planning and development it is essentialto understand how well the tourism sector has interlinked with the differenteconomic sectors in the Lao PDR Therefore this paper investigates the effectsof visitorsrsquo expenditure on the Lao PDR economy by assessing the inter-industrylinkages and deriving the key sectors for 2003 and 2008

The paper is organized as follows Next the second section briefly reviewsresearch examining different approaches to inter-industry linkages and keysector analyses The third section outlines the data and methods used in thisstudy including the econometric model and the software used to determine theeconomic linkages and perform the key sector analyses The fourth sectionpresents and discusses the research results This is followed by the conclusionsimplications and limitations of the study and areas for future research

Literature

Identification of the significance of the inter-industry linkages of economicsectors is vital for development planning Linkage analysis allows the comparison

173Tourism inter-industry linkages in Lao PDR

of different sectors of an economy in terms of the interdependence of theirproduction structures (Pratt 2011) Various econometric models have been usedto measure economic linkages and the impact of tourism in an economy suchas inputndashoutput (IndashO) the social accounting matrix (SAM) and the tourismsatellite account (TSA) The statistical data available in the Lao PDR nationalaccounts allow an economic analysis using the IndashO model approach The IndashOmodel quantifies the direct and indirect impacts and defines the ranking ofeconomic sectors based on their linkage strengths More specifically IndashO tablerows show lsquowho gives to whomrsquo and the columns show lsquowho receives fromwhomrsquo (Bekhet 2010) Thus linkages using IndashO models refer to the transactionsamong different economic sectors for example sectors that purchase and sellproducts to each other for production purposes Linkages have three componentsbackward forward and total linkages The backward linkage index denotes theamount a sector demands from other sectors whereas forward linkage indexdenotes how much a sector is demanded (Parreacute et al 2002) The lsquototal linkagesrsquois the sum of the backward and forward linkages (Azad 1999) Measurementof the strengths of the linkages allows the identification of the key sectors inan economy

Various researchers have used IndashO models to estimate the linkages of thetourism sector in an economy Rasmussen (1956) Hirschman (1958) andChenery and Watanabe (1958) pioneered the measurement of linkages approachwhich indicates the importance of the different economic sectors in terms oftheir direct impact on the whole system Zhou et al (1997) applied bothIndashO and computable general equilibrium (CGE) models to the Hawaiian economyand identified the industries that are key to tourism The IndashO model is a majorcomponent of the SAM and an important lsquodatabasersquo for most CGE models(Lindberg 2011) Guo et al (2005) and Cai et al (2006) supported Sonis et alrsquos(1995a) findings that conventional and modern linkage approaches complementeach other for linkage and key sector analyses Cai et al (2006) developed amethod to compute tourismrsquos linkages using national regional or local IndashOtables and demonstrated its utility by applying it to Hawaiian economy

Cella (1984) Sonis et al (1995a) Hewings et al (1998) Cai et al (2006)Midmore et al (2006) and other economists updated linkage and key sectoranalysis methods making the calculations widely applicable to verify how eachsectorrsquos influence is distributed over the economy Other studies that adoptedIndashO models using linkages and key sector analyses include Kula (2008) Kwekaet al (2001 2003) Secretario et al (2009) Matallah and Proops (1992) andBeynon et al (2009)

Reis and Rua (2006) reported that the IndashO model provides a bettermeasurement of both backward and forward linkages and key sector analysissince it could account for domestic linkages The authors reported that servicesectors obtained lower linkage values than industry sectors in Portugal

Kweka et al (2001 2003) used different multiplier and inter-industry linkagemeasures for Tanzania and reported that the sectors most important for tourismdemand impacts were food and beverages fishing staple food and wholesaleand retail trade Tourism achieved a significant backward linkage third highestin the economy and a forward linkage higher than the agriculture manufacturingand other service sectors

Using multiple inter-industry linkage approach Secretario et al (2009)

TOURISM ECONOMICS174

reported that two sectors for Cambodia (textile and transport) three sectors forThailand (food and beverages electricity-gas and transport) and four sectors forVietnam (food and beverages paper non-metal and metal production) were keysectors in the 22 sectors in their economies Matallah and Proops (1992) usedboth multiplier and linkage analysis measures and found that in Algeria theconstruction and service sectors were the key sectors but manufacturing energyand water nearly qualified as key sectors

Using CheneryndashWatanabe RasmussenndashHirschman and eigenvector linkagemeasures Beynon et al (2009) undertook analysis of 11 tourism related sectorsin 79 economic sectors in the Welsh economy Transportation recreation andwelfare guest houses and non-service accommodation were considered thekey sectors they achieved greater values in backward and forward linkages thanother economic sectors Using total and pure linkages for China AndreossoOrsquoCallaghan and Yue (2004) found that the average linkages had increased from1987ndash1997 High total linkage coefficients were concentrated mainly in theagriculture manufacturing construction and services sectors Although the listof key sectors in the economy differs among the various approaches used in thestudy the core key sectors comprised agriculture textile construction primarymetals commerce and other services The authors chose the pure linkagemethod over the total linkage method for better results in identifying keysectors

A key sector means that an increase in the final demand for the sectorrsquosoutput will have a large impact on the sectors that supply inputs to supportthe key sectorrsquos output (Drejer 2003) Using the RasmussenndashHirschman andCheneryndashWatanabe linkage outputs which consider only linkage effectswithout any consideration of the level of production in each sector mayresult in misleading interpretation because a sector can be identified as a keysector because of its higher backward and forward linkages (Sonis et al 1995a)The authors further suggested that the level of production is also importantbecause it helps to determine which sectors will be responsible for changesin the macro-level measures of the economy Hence multiple approaches needto be combined to derive better ways of explaining the linkages of aneconomy (Beynon et al 2009 Cai et al 2006 Sonis et al 1995a Surugiu etal 2009)

Data and methodology

An initial attempt to compile the 1997 national IndashO table for Lao PDR hasbeen made earlier (Asra et al 2006) however owing to the unreliability of thedata the Lao National Statistical Centre withheld the publication Since thenthe country has been producing its national accounts annually These aresymmetrical with an IndashO application The first study on IndashO data in thecountry was published in 2003 with the help of the Asian Development BankIn addition Asra et al (2006) in the Lao PDR and Saito and Kobayashi (2007)in four countries of the GMS (including Lao PDR) undertook IndashO analyses thathave estimated the economic impact on the regionalnational economies Simet al (2007) used IndashO models for both Savannakhet (Lao PDR) and Mukdaharn(Thailand) to compare the provincesrsquo economic structure

Tourism is not a distinct sector in the standard industrial classification

175Tourism inter-industry linkages in Lao PDR

system of the Lao PDR This study therefore used procedures to disaggregatethe tourism sector from the other economic sectors of the countryrsquos economyThe actual national gross inputs and outputs for 2003 and 2008 (NationalStatistics Centre (NSC) 2003 2008) were employed to construct both yearsrsquonational IndashO tables using the mixed approach (using both primary and second-ary data) A visitorsrsquo expenditure survey collected demographic as well asexpenditure details of international visitors departing the country Visitorsrsquoexpenditure was extrapolated based on the expenditure categories obtained fromthe survey

The IndashO coefficients of the 2003 IndashO table were used to update the 2008IndashO table of the Lao PDR by the RAS method as per the requirements tobalance the IndashO tables Row (R) is called the row coefficient (substitutioneffects) column (S) is called the column coefficient (fabrication effects) for thesector (updated year) and lsquoArsquo is IndashO coefficient of the base year The RASmethod is relatively simple and uses a bi-proportional matrix leading tominimum errors while estimating and updating IndashO tables (United Nations1999) The data were analysed using SimSIP SAM software a Microsoft Excel-based application with MATLAB applications that can be used to analyseIndashO tables (Parra and Wodon 2008) Previous studies that used the softwarefor IndashO analyses include Parra and Wodon (2009) for Tanzania Fofana et al(2009) for Senegal and Nganou et al (2009) for Kenya

A total of 417 international visitors were surveyed during NovemberndashDecember 2009 in Lao PDR The results obtained from the survey acrossallocated spending categories were extrapolated using data on total visitorarrivals average length of stay and daily average expenditure This generateddata on expenditure by each spending category for each country of originSumming across the groups and categories and related economic sectorsgenerated the total expenditure in the tourism sector In this study the 20 times20 sectors of the 2003 IndashO table were aggregated into 14 times 14 sectors for bothyears the emphasis has been given to the tourism related sectors in the country(see Table 2) The sector aggregation process followed the guidelines of theUnited Nations (1999) Handbook of Input Output Table Compilation and AnalysisThe tourism economic data for the respective years were obtained from the 2003and 2008 Tourism Year Books of the Lao PDR (LNTA 2003 2008)

Three analysis components were used in this study (a) matrix design updateand balance IndashO table sector impact (b) inter-industry linkages and key sectoranalyses and (c) the structural change of an economy Of the 14 economicsectors five endogenous government sectors (compensation of employeesproduction tax less subsidies depreciation operating surplus import tax) fourexogenous government sectors (household expenditure governmentexpenditure gross fixed capital formation and changes in inventories) two restof the world sectors (exports and imports) and one residual account which isexogenous by construction were identified and simulated for the 2003 and2008 data for the economy

A number of previous studies that used multiple methods of estimatinglinkages and analysing key sectors have yielded different results This presentstudy builds on Bocoum (2000) Kweka et al (2001 2003) Beynon et al (2009)and Surugiu et al (2009) to define key sectors in ordinal terms (ranking theeconomic sectors based on their linkage strengths) A number of approaches to

TOURISM ECONOMICS176

Table 2 Economic sector aggregations of the Lao PDR economy

Sectors in Lao PDR national accounts Sectors used in this study Code usedin this study

Agriculture Agriculture

1 Crops 1 Agriculture and livestock AGRILIVE2 Livestock fisheries and poultry3 Forestry and logging 2 Forestry and logging FORESLOG

Industry Industry

4 Mining and quarrying 3 Mining and quarrying MINEQYAR5 Food beverage and tobacco 4 Food and beverages

manufacturing manufacturing6 Textiles garments and leather 5 All other manufacturing

products7 Wood and paper products printing8 Chemical products petroleum9 Non-metallic mineral products

10 Metal products machinery and parts11 Other manufactured goods ALLMANUF12 Electricity and water supply 6 Electricity and water supply ELECWATE13 Construction 7 Construction CONSTRUC

Services Services

14 Transportation 8 Transportation and TRANCOMMcommunication

15 Postage and telecommunication16 Wholesale and retail trade 9 Wholesale and retail trade WampRTRADE17 Banking and insurance 10 Finance banking and insurances BANKFINA18 Real estate and business services 11 Real estate and business services REALBUSI19 Public administration 12 Public administration PUBADMIN20 Personal social and community 13 Personal social and community

services services PERSERVI14 Tourisma TOURISM

Note aThe tourism sector is created as a new sector in Lao PDR economy

estimate the sets of linkage measures have been developed within the IndashOframework Our study uses six linkage indices (CheneryndashWatanabe linkageRasmussenndashHirschman linkage pure linkage weighted linkage IndashO multiplierproduct matrix and self sufficiency rate) to derive sector strengths and undertakekey sector analysis of the Lao PDR economic sectors These linkage measure-ment approaches are estimated as follows

CheneryndashWatanabe inter-industry linkages

The Chenery Watanabe linkage considers linkage effects without anyconsideration of the level of production of the economic sectors Beynon et al(2009) reported that the approach gives the direct economic impacts andutilizes the row and column multipliers of the IndashO matrices The Cheneryndash

177Tourism inter-industry linkages in Lao PDR

Watanabe inter-industry linkages in our study are derived as Beynon et al (2009)(see Equations (1) and (2) in the Appendix)

RasmussenndashHirschman backward and forward linkages

This linkage approach takes into account indirect economic effects which areignored in the CheneryndashWatanabe approach (Miller and Blair 2009) The sectorwith higher backward and forward linkage values represents the sector with thehigher effect on the demand for domestic production and the larger impact inthe economy (Cai and Leung 2004) A linkage value above one of a sectorindicates that the sector draws more than average from the economic systemand a value below one means the sector draws less than average (Parra andWodon 2008) These linkages in this study are estimated using Equations (3)and (4) (see Appendix as Bonet (2005) Parreacute et al (2002) and Sonis et al (1995a)

The interpretations of linkages are as follows key sectors both BL andFL gt 1 backward oriented sectors BL gt 1 and FL lt 1 forward oriented sectorsBLlt 1 and FL gt 1 and weak sectors BL lt 1 and FL lt 1

Total linkages are the backward and forward linkages of each sector whichrepresents both the direct and indirect capacity of the services to increaseeconomic activity throughout the economy following an increase in their owndemand (Azad 1999) Total linkages provide an alternative basis for comparisonthe sectors that have the greatest values are considered key sectors of theeconomy (Sonis et al 1995a)

Pure linkages

Pure linkages measured in monetary terms are weight factors of the sectorrsquoslinkage power (Parra and Wodon 2008) The pure linkage index of backwardforward and total linkages measures the importance of a given sector to the restof the economy in terms of the sectorrsquos total output Pure backward and forwardlinkages are shown in Equations (5) and (6) (see Appendix) (Bonet 2005 Soniset al 1995a 1995b)

Weighted linkages

Weighted linkage uses the relative importance of final demand and total sectoroutput as weights while estimating the linkages of economic sectors Drejer(2003) explained that introducing weights to the economic sector based on itsproduction scale while calculating the linkages is the investment induced bythe key sectors The weighted linkages are calculated as Drejer (2003) (seeEquations (7) and (8) in the Appendix)

IndashO multiplier product matrix (MPM)

The IndashO MPM provides the landscape of an economy showing the hierarchiesof backward and forward linkages of the economic sectors (Bonet 2005) TheIndashO MPM graph derives the economic sectorsrsquo ranking based on the size of thehierarchies of the values of both linkages The MPM from the IndashO tables isestimated using Equations (9) and (10) (see Appendix) (Bonet 2005 Hewingset al 1998)

TOURISM ECONOMICS178

Self-sufficiency rate (SSR) analysis

Asra et al (2006) defined SSR for economic sectors as the ratio of totalproduction to total domestic demand of an economy The SSR values can beexpressed in Equation (11) (see Appendix) (Asra et al 2006 Secretario et al2009)

The SSR of an economic sector is interpreted as follows SSR ge 1 means thatits output is sufficient to sustain its domestic demand If the SSR lt 1 thenthe economic sector is an import oriented sector that relies on imports to meetthe total domestic demand

Our study estimates inter-industry linkage values and identifies key sectorsof the Lao PDR economy based on both individual and combined indices oflinkage measures The multi ranked index (MRI) approach (Kweka et al 20012003) was modified and applied incorporating multiple linkage measures toderive tourismrsquos overall position and identify key sectors of the Lao PDReconomy For this index a new value was assigned to all linkage measureapproaches of the 14 economic sectors based on their rankings The values wereassigned as follows first five sectors were assigned a score of lsquo3rsquo the next fivesectors a score of lsquo2rsquo and the remaining sectors a score of lsquo1rsquo After summingand averaging these values for the countryrsquos 14 economic sectors the highestaverage scores are identified as key sectors (first five sectors) average sectors(next five sectors) and weak sectors (final four sectors)

Results and discussion

Profile of surveyed respondents

In terms of frequency of visits 52 of the respondents made multiple visitsto the country whereas 48 visited the country for the first time Touristsvisiting the Lao PDR as single day visitors contributed 8 of total arrivalsThe majority of Thai Vietnamese and Chinese visitors were day visitors Theresults showed that the most common reasons for visiting the Lao PDR werefor lsquoholiday and vacationrsquo (58) followed by lsquobusiness and commercial purposesrsquo(13) lsquoconferences and meetingsrsquo (8) and lsquovisiting families and friendsrsquo (6)Visitors from Thailand (30) had the shortest average stay in the Lao PDR(41 daysvisit) whereas visitors from Vietnam spent 62 days per visit Europeansand Americans stayed longer (93 daysvisit) than the overall average followedby visitors from other South East Asia East Asia and Pacific countries Theresults revealed that Thai and Vietnamese visitors stayed a shorter duration andspent less than the average expenditure About 15 of the respondents stayedmore than 10 days in the Lao PDR the longest was 42 days The average lengthof the stay was 68 daystrip

Expenditure patterns of international visitors

The results showed the average amount spent by the respondents was US$246trip with an average daily expenditure of US$36 Respondents spent 30 oftheir total expenditure in the accommodation sector amounting to US$84million and US$69 million for food and beverages This accounted for 25

179Tourism inter-industry linkages in Lao PDR

Table 3 Expenditure in the Lao PDR of the respondents by country of origin 2009

Sector Thailand Vietnam China Euro SEA Rest ofROM Ame EA PA world

Accommodation 264 337 3129 280 278 275Food and beverages 266 250 2255 184 187 178Shoppingretail trade 173 96 1081 98 102 105Local transportation 101 111 976 106 113 101Sight seeing 42 58 651 68 88 55Recreational activities 98 83 818 73 78 64Communications 40 47 565 44 51 59Visa fee 00 00 344 113 63 125Miscellaneous 16 17 179 35 39 38

Total 1000 1000 1000 1000 1000 1000

Note N = 417 (figures are percentages) Euro Ame = European and American countries other SEA =Singapore Malaysia Indonesia and Philippines EA PA = East Asia and the Pacific ROM = Rest of theMekong (Cambodia and Myanmar)Source Visitorsrsquo Expenditure Survey 2009

of the total expenditure Further a total of US$36 million (13 of totalexpenditure) was spent in the retail trade sector and US$44 million on enter-tainment and recreation (16) Finally visitors spent US$13 million (5) ontransportation US$11 million (4) on banking and communication relatedexpenses and US$17 million (6) on visa fees and miscellaneous expenses

Forty-two per cent of the total arrivals in the Lao PDR were from Thailand(495000 visitors 30) and Vietnam (233000 visitors 13) followed by otherSouth East Asian East Asian and Pacific countries (358000 visitors 22)Europe and America (325000 visitors 19) China Cambodia and Myanmar(254000 visitors 14) and the Rest of the World (70000 visitors 5) Theresults indicated that the country received the majority of its visitors from otherGMS countries South East Asian (SEA) countries (Indonesia Malaysia Singa-pore and Philippines) European and American (Canada and USA) countriesEast Asian (Japan and South Korea) and Pacific countries (Australia and NewZealand)

Table 3 shows the visitorsrsquo expenditure patterns based on their country oforigin Thailand the biggest proportion of the Lao PDRrsquos international visitorarrivals spent less on accommodation (26) but had relatively higher expenseson food and beverages (27) Thai visitors spent more on retail trade (17)and recreational activities (10) than other visitors Other countriesrsquo visitorsspent more on accommodation Europe and America (28) other SEAcountries East Asia and the Pacific (28) and the Rest of the World (27)All respondents except the visitors from other SEA member countries paid visafees on entering the Lao PDR typically ranging from US$8 to 42 per trip andperson (LNTA 2009) Visitors from Europe and America spent more onmiscellaneous expenses than other visitors Visitors from GMS countries spentmore on lsquoentertainment and recreationalrsquo activities whereas visitors fromEurope America and other SEA countries spent more on sightseeing and trans-portation

TOURISM ECONOMICS180

Table 4 Total gross receipts from visitor arrivals in the Lao PDR 2009

Countryregion Expenses Duration Expenses Total Estimated Totalof origin trip of stay per tourist tourists income receipts

tourist per trip per day (million) (million ()(US$) (days) (US$) US$)

Thailand 1404 410 3425 04956 6972 1678Vietnam 1694 613 2764 02332 3959 953China ROM 2054 716 2869 02540 5229 1258Europe America 3370 933 3612 03249 10970 2640SEA EA PA 3414 888 3844 03582 12250 2948Rest of the World 3046 794 3836 00708 2161 520

Average 24559 683 3596 17367 41550 1000

Source Visitorsrsquo Expenditure Survey 2009

Table 4 shows the total gross receipts from visitor arrivals in the Lao PDRGMS countries provide more arrivals (56) but shorter stays so ultimatelythey represent a lower share in tourism receipts (40) Thailand has a 30share of visitor arrivals but the total receipts amounted to about 17 (US$69million) Vietnam had over 13 of total arrivals but contributed only 10 oftotal tourism receipts (US$39 million) China Cambodia and Myanmar jointlyaccounted for 15 of total arrivals but their contribution to total tourismreceipts was only 13 (US$52 million) Visitors from Europe America otherSEA East Asia and the Pacific had a higher share of tourism receipts becauseof their longer stays and higher average daily expenditure (see Table 4)

Tourism macro-economic indicators of Lao PDR

International visitor arrivals increased 27 times from 2003 to 2008 andtourism receipts increased at an even greater rate of 32 times In 2008 tourismwas the third largest sector after the agriculture and livestock and forestry andlogging sectors employing about 19000 people directly and 12000 indirectlyFurther tourism accounted for 84 of business taxes and contributed 75to the national GDP ranked fourth largest among the 14 economic sectors ofthe country in GDP contribution The three other sectors that contributedsignificantly to the GDP were agriculture and livestock (17) food andbeverages manufacturing (16) and the wholesale and retail trade (12) Themacro-economic indicators derived from IndashO analysis showed that tourismimpacted positively on the economy from 2003 to 2008

Inter-industry linkages of the tourism sector in the Lao PDReconomy

CheneryndashWatanabe inter-industry linkage approach

The CheneryndashWatanabe linkage approach revealed that the average backwardand forward linkages increased between 2003 and 2008 This shows an increasing

181Tourism inter-industry linkages in Lao PDR

degree of sector interdependence together with high economic growth and amore diverse economy between the study years Of the 14 economic sectorsthe tourism sector ranked fourth in 2003 with 2694 and third in 2008 with2921 The total linkages showed the wholesale and retail trade (3442) tourism(2921) mining and quarrying (2781) and forestry and logging (2771) sectorswere the most improved sectors in 2008 The results also showed that tourismrsquosinteraction with the other economic sectors increased by 23 cents per US$1spent indicating a higher dependency of tourism on the intermediate inputsover the five years

RasmussenndashHirschman linkage and total linkage approaches

Figures 1 and 2 show the backward and forward linkages of the Lao PDReconomy in 2003 and 2008 respectively The wholesale and retail trade sectorwas the only key sector in 2008 Tourism was one of the strongest backwardoriented sectors in the economy for both years alongside electricity and watersupply transport and communication construction and food and beveragesmanufacturing sectors The sectors with high backward linkages depend moreon intermediate goods which are typically capital intensive Additionally thetourism sector showed relatively high indices of the power of dispersionindicating higher backward linkage effects (109 2003 and 124 2008) thatresult in higher output multipliers in the countryrsquos economy The tourism sectortogether with the other three economic sectors showed a significant incrementin the total linkages value in 2008 compared with 2003 The difference +014for the tourism linkages value indicates that tourismrsquos interactions with othereconomic sectors increased by 14 during the five years (14 cents moregenerated as linkage effects from a dollarrsquos expenditure by an internationalvisitor)

As reported by Pratt and Kay (2006) backward linked sectors are moreimportant than forward linked sectors because backward linked sectors influencethe rest of the economy through multiplier effects Backward oriented sectorsare relatively more stable than forward linked sectors (Bonet 2005) Thetourism sectorrsquos higher backward linkage value is also associated with the highemployment and a larger output indicating that the sector purchases moreinputs from the Lao PDR economy Agriculture and livestock mining andquarrying and banking and finance were forward oriented sectors The rest wereweak sectors in 2008

In forward linkages the tourism sector ranked fifth of the 14 economicsectors for both years The average forward linkage index indicates that thesector has a medium capacity to sell its products to other sectors the tourismsectorrsquos inputs are mainly used for personal consumption and to provide finalgoods to the economy Forward linkages are supply oriented Tourism is oneof the four sectors that had high backward linkage values for both years in theLao PDR economy This implies that tourism as a purchaser of inputs increasedmore than the average of all economic sectors in the economy for both yearsThe economic sectors that exhibit higher backward linkages are the sectors thatare more connected with the industrial sectors (Azad 1999) Vavrla and Rojicek(2006) reported that the industry with the highest value of backward linkagesrepresents the industry with the highest effect on domestic production

TOURISM ECONOMICS182

Figure 1 Backward and forward linkages in the Lao PDR economy in 2003Note 1ndash14 show the economic sectors of Lao PDR (see details in Table 2) Sector numbers are usedinstead of sector names in order not to overcrowd the figure

Figure 2 Backward and forward linkages in the Lao PDR economy in 2008Note 1ndash14 show the economic sectors of Lao PDR listed in Table 2

Arabsheibani and Delgado-Aparicio (2002) explained that weak backward andforward linkages between sectors indicate that the economy is poorly integratedand depends on imports

157

147

137

127

117

107

097

087

077

067

077 087 097 107 117 127 137 147 157

ucirc

ucirc

ucircucirc

ucircucircucirc ucircucirc

ucircucirc

ucircucirc

ucirc

Key sectors

4

Backward-oriented sectors

Backward linkages

Weak sectors

14 (tourism)

8

6

3

7 1012

2 11

135

9

1

Forw

ard

lin

kages

Forward-orientedsectors

164

144

124

104

084

064

075 085 095 105 115 125

ucirc ucirc

ucircucirc ucirc

ucirc

ucirc ucircucircucirc

ucirc

ucircucirc ucirc

ucirc

19

103

2 75

11

1312

64

8

14 (tourism)

Key sectorsForward-oriented

sectors

Forw

ard

lin

kages

Weak sectorsBackward linkages

Backward-oriented sectors

183Tourism inter-industry linkages in Lao PDR

Table 5 Total linkages of the Lao PDR economic sectors 2003 and 2008

Economic sectors TL (2003) Rank TL (2008) Rank

Agriculture and livestock 2419 2 2478 2Forestry and logging 1959 7 1818 11Mining and quarrying 1966 6 1934 8Food and beverages manufacturing 2079 3 2058 5All other manufacturing 1908 10 1861 9Electricity and water supply 1992 5 1840 10Construction 1904 11 1938 7Transport and communication 1916 9 2063 4Wholesale and retail trade 2433 1 2645 1Banking finance and insurance 1941 8 2001 6Real estate and business services 1848 12 1778 12Public administration 1800 13 1671 14Personal community and social services 1770 14 1704 13Tourism 2065 4 2210 3

Note TL = total linkages The strongest backward and forward-linked sector ranked as 1 and the leastas 14 in this study

The aggregation of backward and forward linkages provides an alternativebasis for identifying key sectors in the economy (Table 5) Among the 14economic sectors of the Lao PDR in 2003 the wholesale and retail tradeagriculture and livestock food and beverages manufacturing and the tourismsectors had the highest total linkages The electricity and water supply miningand quarrying forestry and logging and banking and finance sectors wereaverage sectors in 2003 The remaining six sectors were weak sectors Similarlyin 2008 the tourism sector along with wholesale and retail trade agricultureand livestock and the transport and communication sectors achieved relativelyhigher total linkages values The banking and finance food and beveragesmanufacturing construction and mining and quarrying sectors obtained higherlinkages values than the average of all sectors The rest of the economic sectorsachieved lower linkage values than the average of all sectors in 2008 The resultsshow that tourism ranked fourth in 2003 with a value of 206 of total linkagesand moved up to third in 2008 (221 of total linkages) The more linkages existbetween tourism and the general economy the more innovative the tourismcluster will be (Lejarraja and Walkenhorst 2007) Economic sectors withrelatively high linkages offer greater potential to stimulate the economic activity ofother sectors and therefore have a greater effect on economic growth (Jones1976)

Overall in the study years except the food and beverages manufacturingsector the industry sector does not have particularly strong linkages with therest of the economy even though the sector relies on imported inputs Theindustry sector is underdeveloped and largely dominated by the mining andquarrying sector The agriculture sector produces traditional outputs fromsubsistence farming in the country with low levels of value added Mining andquarrying (industry) and forestry and logging (agriculture) do not possess greatlinkages although these sectors produce the highest level of outputs mainly for

TOURISM ECONOMICS184

Table 6 Pure linkages of the economic sectors of the Lao PDR 2008

Sectors PBL Rank Sectors PFL Rank Sectors PTL Rank

FOODBEV 42508 1 AGRILIVE 46369 1 AGRILIVE 7969 1AGRILIVE 3332 2 WampRTRA 37456 2 WampRTRA 6571 2WampRTRAD 2825 3 BANKFIN 24107 3 FOODBEV 6232 3MINEQYA 21116 4 ALLMAN 20987 4 ALLMAN 4195 4ALLMAN 20965 5 FOODBEV 19807 5 MINEQYA 4080 5TOURISM 17911 6 MINEQYA 19682 6 TOURISM 3378 6FORESLO 16488 7 TOURISM 15867 7 BANKFIN 3336 7PUBADMI 15755 8 FORESLO 15327 8 FORESLO 3182 8CONSTRU 14186 9 CONSTRU 14834 9 CONSTRU 2902 9ELECWAT 13985 10 ELECWAT 13457 10 ELECWAT 2744 10TRACOM 13163 11 TRACOM 11776 11 TRACOM 2494 11PERSERV 9473 12 PERSERV 8309 12 PUBADMI 2264 12BANKFIN 9252 13 REALBUS 7081 13 PERSERV 1778 13REALBUS 9239 14 PUBADMI 6885 14 REALBUS 1632 14

Total 26561 26194 52755

Note Linkage values are in US$ million

exports The banking and finance and construction sectors grew fast but reliedsubstantially on imported goods and foreign employees so registered lowerlinkages Tourism together with the wholesale and retail trade and electricityand water supply are the most improved sectors between 2003 and 2008 interms of exhibiting high linkages

Pure linkage indices

Table 6 shows the pure backward and forward linkage values of the economicsectors in the Lao PDR economy in 2008 The tourism sector ranked sixthgenerating a total value of US$179 million of pure backward linkage effectsand seventh with a total value of US$158 million of pure forward linkage effectsin the countryrsquos economy The tourism sector generated total pure linkages ofUS$337 million In 2008 the food and beverages manufacturing sector yieldedthe highest pure backward linkages and agriculture and livestock yielded thehighest pure forward linkages The agriculture and livestock wholesale andretail trade and the food and beverages manufacturing sectors were the threemost important sectors in 2008

Parra and Wodon (2008) reported that pure linkage is used for a directcomparison of the relative importance of the economic sectors with the volumeof production and monetary values For example for the tourism sector itindicates the total output driven by the tourism as pure linkages to the differenteconomic sectors excluding the effect of the tourism sector itself In relativeterms in 2003 the three most prominent sectors based on pure linkages werefood and beverages manufacturing agriculture and livestock and constructionComparing the total gross tourism receipts and total pure linkage effects of thetourism sector in the country the total pure linkage effect of the sector wasUS$93 million (total visitorsrsquo expenditure US$87 million) in 2003 which

185Tourism inter-industry linkages in Lao PDR

Table 7 Weighted backward and forward linkages Lao PDR 2008

Sectors TBL Rank TFL Rank TL Rank

AGRILIVE 3154 2 4692 1 7846 1FORESLOG 0509 9 0458 7 0966 9MINEQYAR 0548 7 0454 8 1002 8FOODBEVE 4347 1 3051 2 7398 2ALLMANUF 0546 8 0917 5 1462 5ELECWATE 0352 12 0199 13 0551 12CONSTRUC 1083 3 1055 4 2138 3TRANCOMM 0415 10 0173 14 0588 11WampRTRADE 0767 4 1145 3 1912 4BANKFINA 0234 14 0257 11 0491 14REALBUSI 0253 13 0250 12 0503 13PUBADMIN 0395 11 0300 10 0694 10PERSERVI 0698 6 0325 9 1022 7TOURISM 0724 5 0701 6 1425 6

Note TBL = total backward linkage TFL = total forward linkage TL = total linkages

increased to US$337 million of total pure linkage effects (total visitorsrsquo expendi-ture US$275 million) in 2008

Weighted linkage indices

Table 7 shows the weighted linkage values of the economic sectors of the LaoPDR in 2008 Agriculture and livestock ranked first in both linkages followedby the wholesale and retail trade In 2008 tourism ranked sixth in weightedtotal linkage fifth in backward linkage and sixth in forward linkage amongthe 14 economic sectors The wholesale and retail trade sector was a key sectorwhereas the tourism registered as the most highly backward oriented sectorfollowed by the transport and communication and electricity and water supplysectors Food and beverages manufacturing and construction were backwardoriented sectors in 2008 in contrast to 2003 The sectors with strong forwardorientation in 2008 were the agriculture and livestock mining and quarryingand banking and finance The remaining five sectors were weak sectors in 2008The increasing trends of both the weighted and pure linkage values show thatthe tourism sector relied more on domestic inputs in 2008 than in 2003 Thefindings of the weighted and pure linkages of the tourism were similar andrevealed that the sector was an average performing sector that exhibitedmedium capacity to increase inputs from the rest of the economy

The economic landscape or IndashO MPM of the Lao PDR economy

The row in IndashO MPM represents the hierarchy of forward linkages and thecolumn provides the details of the backward linkages For example the sectorsin the first column of the table are those with higher backward linkages in theeconomy whereas the sectors in the first row of the table have greater forwardlinkages and vice versa (see Figure 3) Each cell of the IndashO table denotes its

TOURISM ECONOMICS186

Figure 3 Economic landscape of the Lao PDR economy in 2008Note Sector numbers are used instead of sector names in order not to overcrowd the figure (seeTable 2)

first order change in the sum of all elements of the inverse matrix cause bythe change in the IndashO coefficients (Parra and Wodon 2008)

Figure 3 shows the structure of the economic landscape of the Lao PDReconomy in 2008 In the backward linkages the tourism sector along with foodand beverages manufacturing electricity and water supply and wholesale andretail trade were the four most important sectors in 2008 These sectorsachieved higher hierarchies than the average of all sectors in the countryTourism was the third most important sector based on the hierarchy of thebackward linkages for both years in the economy The sectors possessing averagebackward linkage hierarchies in the economy in 2008 were mining andquarrying transport and communication other manufacturing and real estateand business services Agriculture and livestock wholesale and retail tradebanking and finance forestry and logging and tourism achieved greaterhierarchy of forward linkages in economy in 2008 The sectors exhibitingaverage hierarchies in the economy were construction mining and quarryingfood and beverages and transport and communication The remaining sectorswere weak sectors

Self-sufficiency rate of the Lao PDR economic sectors

The SSR of all 14 economic sectors of the Lao PDR were computed for 2003and 2008 (see Table 8) In 2003 only mining and quarrying and forestry andlogging were self sufficient for domestic demand In 2008 electricity and watersupply mining and quarrying and forestry and logging sectors were self-sufficient The tourism sector ranked 11th in SSR in both years but itsdependency on imports increased from 2003 to 2008 In percentage terms thetourism sector was about 77 self-reliant in 2003 and this decreased to 64

187Tourism inter-industry linkages in Lao PDR

Table 8 Self-sufficiency rates of economic sectors in the Lao PDR

Economic sectors 2003 Rank 2008 Rank

Agriculture and livestock 091 6 088 4Forestry and logging 110 2 108 3Mining and quarrying 223 1 250 1Food and beverage manufacturing 098 3 079 7All other manufacturing 075 12 082 6Electricity and water supply 090 8 154 2Construction 065 13 057 13Transport and communication 091 7 055 14Wholesale and retail trade 086 9 072 10Banking finance and insurance 093 5 063 12Real estate and business services 098 4 085 5Public administration 082 10 079 8Personal social and community services 064 14 073 9Tourism 077 11 064 11

Weighted average SSR 089 084

in 2008 The lower SSR values of the tourism sector revealed that the sectordepended on imports for tourism goods and services and significantly greaterincome leakages occurred through the economy in 2008 than in 2003

Overall the average value of the SSR of the service sectors was significantlylower than that of industry and agriculture sectors The agriculture sector ismore or less self-sufficient but the industrial and service sectors are not ableto satisfy domestic demand Compared with Secretario et alrsquos (2009) study inCambodia (093) Vietnam (097) and Thailand (103) Lao PDRrsquos overall SSRvalue (085) showed that the Lao PDR economy is relatively less self-sufficient

Leakage and imports of tourism goods and services by the Lao PDR tourismsector were also measured Reis and Rua (2006) defined the leakage ratio asthe ratio between the coefficient of leakage and the coefficient of interdepend-ence The coefficients of interdependence were 141 in 2003 and 154 in 2008and the coefficients of leakage of 034 (2003) and 043 (2008) were computedfor the economy In percentage terms the leakage ratios were 24 (2003) and28 (2008) in the countryrsquos economy which indicates that the tourism sectorrsquosleakages were relatively higher and the sector was less self sufficient in domesticproduction during the latter year of the study

Key sectors

Table 9 shows the key sectors of Lao PDR economy for 2003 and 2008 basedon the MRI approach In 2003 the tourism sector together with agricultureand livestock food and beverages manufacturing transport and communicationand the wholesale and retail trade sectors were the key sectors Similarly thefood and beverages manufacturing agriculture and livestock wholesale andretail trade tourism and mining and quarrying sectors were key sectors in2008 There was an increase in the final demand for these (key) sectorsrsquo outputs

TOURISM ECONOMICS188

Table 9 Key sectors of the Lao PDR economy based on the multi rank index approach

Sectors 2003 2008

Key Food and beverages manufacturing Food and beverages manufacturing Agriculture and livestock Agriculture and livestock Tourism Wholesale and retail trade Transport and communication Tourism Wholesale and retail trade Mining and quarrying

Average All other manufacturing Electricity and water supply Electricity and water supply All other manufacturing Banking finance and insurance Forestry and logging Forestry and logging Transport and communication Public administration Construction

Weak Personal community and social services Real estate and business services Construction Public administration Real estate and business services Banking finance and insurance Mining and quarrying Personal community and social services

which will have a greater impact on the sectors that supply inputs for theproduction of these sectorsrsquo outputs in the economy Further the significantbackward linkage of the tourism sector showed its influence was widelydistributed in the Lao PDR economy

The construction personal social and community services public adminis-tration and real estate and business services exhibited weak linkages Thesesectorsrsquo final demand increments will have significantly lower impacts on thesectors that supply inputs in the production of these sectorsrsquo outputs whichare characterized by high imports of goods and services and a high level offoreign ownership The results shows that three of the five key sectors in 2008were in the services sector (tourism wholesale and retail trade and electricityand water supply) but only two were key sectors in 2003 (tourism and wholesaleand retail trade) The structure of the economy as shown by the key sectorinteractions had shifted from the agriculture and industry sectors to the servicesectors providing evidence that the services sectorsrsquo beginning to dominate inLao PDR economy during the five years

One common finding of the linkage analysis methods was that tourismexhibited strong backward linkages in both years Based on the MRI approachthe tourism sector ranked third in 2003 and fourth in 2008 in the key sectoranalysis of the economy The common key sectors for both years were tourismfood and beverages manufacturing wholesale and retail trade and agricultureand livestock These sectors demonstrated greater values of linkages than othereconomic sectors and possess greater influence through both purchases and salesin the economy

The respective rankings of the linkages and the key sectors of the Lao PDReconomic sectors varied with the different methods used in our study Thisshows some inconsistencies from the policy perspective particularly where asector is a key sector in one linkage approach and not in another Thereforeour study defined key sectors based on both individual and combined ranking

189Tourism inter-industry linkages in Lao PDR

of linkage strengths However the MRI approach incorporated all linkageindicators used in this study and provided better results and insights into thelinkage and key sector analyses The different results of these linkage approachesare also caused by to some extent the different methodologies Our studysuggests that the different inter-industry linkage methods used in this studydo not replace each other for linkage and key sector analyses of the economyrather they complement each other Further the multiple indicators of thelinkages used in our study have exhibited consistent and more widely applicableoutcomes Our findings also support and complement the findings of the Soniset al (1995a) Beynon et al (2009) Cai and Leung (2004) Kweka et al (20012003) and Kula (2008) using a set of approaches in identifying the key sectorsin an economy

Conclusion

International visitor arrivals and total tourism receipts increased significantlyin the Lao PDR between the two study years Since 2001 tourism ranked asthe second most significant sector in the foreign exchange earnings in thecountry after mining and quarrying The higher values of macro-economicindicators such as employment GDP contribution and output generation fortourism showed that the sector has gained more importance in the countryrsquoseconomy in 2008 than in 2003 This attests to the significance of tourismrsquospotential to enhance economic growth in the development of the Lao PDR

Using CheneryndashWatanabe RasmussenndashHirschman and the IndashO MPMlinkage measures this study found that tourism was within the top four sectorsfor both years In pure and weighted linkages the tourism sector was an averageperforming sector This is because the majority of the tourism products andservices were used as final demand for personal consumption In terms of SSRthe tourism sector ranked low in both years because of higher income leakagesthrough a significant number of foreign employees and the import of luxurygoods in the hotel and accommodation sectors Based on the MRI approachin 2003 the food and beverages manufacturing agriculture and livestocktourism transport and communication and wholesale and retail trade were allkey sectors in the economy In 2008 the food and beverages agriculture andlivestock wholesale and retail trade tourism and mining and quarrying werethe key sectors Tourism together with the wholesale and retail tradeagriculture and livestock and food and beverages manufacturing were the fourcommon key sectors for both years These sectors have thus dominated changesin the economy over the five-year period The number of key sectors from theservice sector has increased from two to three between 2003 and 2008 indicating ashift from an agricultural and industrial economy to one influenced more bythe provision of services

The tourism sectorrsquos linkages were stronger in 2008 than in 2003 due tothe significant increment in the sectorrsquos backward linkages Tourism is one ofthe four most important sectors it had one of the highest backward linkagesvalues of all inter-industry linkages measured in our study This indicates thatthere was a positive relationship between the increase in tourismrsquos linkages andthe growth of production activities in the domestic economy Tourism falls into

TOURISM ECONOMICS190

the group of lsquorelatively average forward linkagersquo sectors because most of theproducts of the sector are used for final consumption The tourism sector hasincreased linkage effects more than other economic sectors therefore itsexpansion is advantageous to the economy Further there were substantiallinkages between tourism and the rest of the economy therefore the tourismsector is potentially important in the countryrsquos economy

Tourism is a multi-sector industry and its demand impacts several sectorsin the economy Therefore policy and development programs should be directedat the strong inter-linked sectors with tourism such as construction tourismwholesale and retail trade and finance banking and insurance Despite theglobal economic recession the growth prospects of the national economy andthe tourism sector of Lao PDR remain positive The country estimated its 85overall economic growth in 2011 to be the highest among the GMS countries(ADB 2011) We conclude that the economic benefits of the tourism industryare positive and its expansion will stimulate faster economic growth for the LaoPDR economy

Research implications

The study compared tourism linkage indicators for two calendar years Under-standing tourismrsquos linkage strength to the other economic sectors helps othersectors to be better informed of different economic sectorsrsquo needs opportunitiesand avoid possible supply bottlenecks in the Lao PDR economy This helps toadjust the production structure of the tourism businesses to meet future tourismdemands in the country Our study findings suggest the need for the Lao PDRgovernment and private sector to promote and invest in those tourism inter-linked sectors such as accommodation food and beverages entertainment andretail trade establishments that are well inter-linked with the general economyParticularly the government should pay attention to the creation of thenecessary conditions for the development of such linkages that will help reducethe import of tourism goods and services considerably This study enhanced theprocedures for estimating linkages and key sector analyses to quantify theeconomic contribution of tourismrsquos linkages in an economy The results areuseful for highlighting the importance of the tourism sector for the Lao PDReconomy and also its multiplier effects due to linkages to other economicsectors This analysis is also useful for policymakers in other developingcountries who seek to better understand the role of their tourism sector Ourfindings are supported by other studies using the same approach

Limitations and areas of future research

The national accounts of Lao PDR do not identify tourism as a distinct sectorAt present the country lacks tourism statistical data that can fulfil the require-ments of the TSA Our study also highlights the difficulties of obtaininginformation for this kind of research in developing countries The countryrsquosnational accounts were compatible with IndashO tables that made possible to usethe IndashO model in the study However there has been progress in the Lao PDR

191Tourism inter-industry linkages in Lao PDR

towards upgrading tourism statistics in line with UNTWO recommendedsatellite accounts (UNWTO 2009) A better understanding of the countryrsquoseconomy requires in-depth economic linkage studies between changes inproduction consumption and the income distribution

References

ADB (2008) Tourism Sector in Greater Mekong Subregion Asian Development Bank ManilaADB (2011) Key Indicators of Asia and the Pacific 2011 Asian Development Bank ManilaAndreosso OrsquoCallaghan B and Yue G (2004) lsquoIntersectoral linkages and key sectors in Chinarsquo

Asian Economic Journal Vol 18 No 2 pp 165ndash183Arabsheibani R and Delgado-Aparicio A (2002) lsquoTourism multiplier effects on Perursquo Brazilian

Journal of Business Economics Vol 2 No 3 pp 31ndash45Asra A Secretario FT and Suan EB (2006) Development of an Input Output Framework An

Application to Savannakhet Lao PDR Asian Development Bank ManilaAzad AK (1999) Inter-industry Linkages of Services in the Bangladesh Economy (With a Case Study of

the Ready-made Garments Industry) and Potential Services Trade World Bank Washington DCBekhet HA (2010) lsquoRanking sector changes of the Malaysian economy input output approachrsquo

International Business Research Vol 3 No 1 pp 107ndash130Beynon M Jones C and Munday M (2009) lsquoThe embeddedness of tourism-related activity a

regional analysis of sectoral linkagesrsquo Urban Studies Vol 46 No 10 pp 2123ndash2141Bocoum B (2000) The Mineral and Energy Sectors and Stages of Economic Development A Comparative

Input Output Analysis African Development Bank AbidjanBonet J (2005) Regional Structural Changes in Columbia An Input Output Approach Borradores de

Economia CartagenaCai J and Leung PS (2004) lsquoLinkage measures a revisit and a suggested alternativersquo Economic

System Research Vol 16 No 1 pp 65ndash85Cai J Leung PS and Mak J (2006) lsquoTourismrsquos forward and backward linkagesrsquo Journal of Travel

Research Vol 35 No 1 pp 36ndash52Cella G (1984) The Input Output Measurement of Inter-industry Linkages (1468ndash0084) Oxford

Bulletin of Economics and Statistics Vol 46 Blackwell LondonChenery HB and Watanabe T (1958) lsquoInternational comparisons of the structure of productionrsquo

Econometrica Journal of the Econometric Society Vol 26 pp 487ndash521Drejer I (2003) Input Output Based Measures of Inter-industry Linkages Revisited Department of

Business Studies Aalborg University AalborgFofana I Parra JC and Wodon Q (2009) Exports and Labour Income by Gender A Social Accounting

Matrix Analysis for Senegal World Bank Washington DCGuo J Hewings GJD and Sonis M (2005) lsquoIntegrating decomposition approaches for the

analysis of temporal changes in economic structure an application of Chicagorsquos economy from1980 to 2000rsquo Economic System Research Vol 17 pp 297ndash315

Hewings GJD Sonis M Guo J Israilevich PR and Schindler GR (1998) lsquoThe hollowingout process in the Chicago economy 1975ndash2011rsquo Geographic Analysis Vol 30 No 3 pp 217ndash233

Hirschman A (1958) The Strategy of Economic Development Yale University LondonJones L (1976) lsquoThe measurement of Hirschmanian linkagesrsquo Quarterly Journal of Economics Vol 90

No 2 pp 323ndash333Kula M (2008) lsquoSupply use and input output tables backward and forward linkages of the Turkish

economyrsquo paper presented at the Meeting of the 16th In-forum World Conference in NorthernCyprus 1ndash5 September

Kweka J Morrissey O and Blake A (2001) Is Tourism a Key Sector in Tanzania Input OutputAnalysis of Income Output Employment and Tax Revenue Christel DeHaan Tourism and TravelResearch Institute Nottingham

Kweka J Morrissey O and Blake A (2003) lsquoThe economic potential of tourism in TanzaniarsquoJournal of International Development Vol 15 No 3 pp 335ndash351

Lejarraja I and Walkenhorst P (2007) Diversification by Deepening Linkages with Tourism Inter-national Trade Department The World Bank Washingotn DC

Lindberg G (2011) Linkages Economic Analysis of Agriculture in the Wider Economy Department ofEconomics Swedish University of Agricultural Sciences Uppsala

TOURISM ECONOMICS192

LNTA (2003) Statistical Report on Tourism in Lao PDR Lao National Tourism Authority VientianeLNTA (2008) Statistical Report on Tourism in Lao PDR Lao National Tourism Authority VientianeLNTA (2009) Statistical Report on Tourism in Lao PDR Lao National Tourism Authority VientianeLNTA (2010) Statistical Report on Tourism in Lao PDR Lao National Tourism Authority VientianeMatallah K and Proops JLR (1992) lsquoAlgerian economic development 1968ndash1979 a multiplier

and linkage analysisrsquo Economic System Research Vol 4 No 3 pp 257ndash268Midmore P Munday M and Roberts A (2006) lsquoAssessing industry linkages using regional input

output tablesrsquo Regional Studies Vol 40 No 3 pp 329ndash343Miller RE and Blair PD (2009) Input Output Analysis Foundation and Extensions Cambridge

University Press CambridgeNational Statistics Centre (NSC) (2003) Statistical Year Book of Lao PDR 2003 National Statistics

Centre VientianeNational Statistics Centre (NSC) (2008) Statistical Year Book of Lao PDR 2008 National Statistics

Centre VientianeNganou JP Parra JC and Wodon Q (eds) (2009) Oil Price Shocks Poverty and Gender A Social

Accounting Matrix Analysis for Kenya World Bank Washington DCParra JC and Wodon Q (2008) SimSIP SAM A Tool for the Analysis of Input Output Tables and

Social Accounting Matrices World Bank Washington DCParra JC and Wodon Q (2009) Comparing the Impact of Food and Energy Price Shocks on Consumer

A Social Accounting Matrix Analysis for Ghana World Bank Policy Research Working PaperNo 4741 World Bank Washington DC

Parreacute JL Alves AF and Sordi JC (2002) Input Output Matrix for Metropolitan Areas Using LocalCensus Data The Case of Maringa Brazil Council for the Economical Development of MaringaCity of Maringa

Pratt JE and Kay DL (2006) lsquoBeyond looking backward is child care a key economic sectorrsquoJournal of the Community Development Society Vol 37 No 2 pp 23ndash37

Pratt S (2011) lsquoEconomic linkages and impacts across the Talcrsquo Annals of Tourism Research Vol 38No 2 pp 630ndash650

Rasmussen PN (1956) Studies in Inter-sectoral Relations North Holland AmsterdamReis H and Rua A (2006) An Input Output Analysis Linkages vs Leakages Economic Research

Department Banco de Portugal LisbonSaito K and Kobayashi S (2007) The International Linkage of Economic Policy in Lower Mekong

Subregion Countries CGE Models University of Tokyo and Mekong Project TokyoSecretario F Kwangmoon K Trinh B Nor V and Manh HD (2009) Comparative Studies of

Indochina Economies (Cambodia Thailand and Vietnam) An Input Output Approach Development andPolices Research Center Hanoi

Sim B Secretario F and Suan E (2007) Developing an Interregional Input Output Table for CrossBorder Economies An Application to Lao PDR and Thailand Asian Development Bank Manila

Sonis M Guihoto JJM Hewings GJD and Martins EB (1995a) lsquoLinkages key sectors andstructural change some new perspectivesrsquo The Developing Economies Vol 33 No 3 pp 243ndash246

Sonis M Hewings GJD and Guo J (1995b) lsquoA new image of classical key sector analysisminimum information decomposition of the Leontief inversersquo Economic System Research Vol 12No 3 pp 401ndash423

Surugiu C Frent C and Surugiu M (2009) lsquoTourism and its impact upon the Romanianeconomy an input output approachrsquo Analele Stiintifice ale Universitatii lsquoAlexandru Ioan Cuzarsquo dinIasi-Stiinte Economice Vol 56 pp 355ndash376

United Nations (1999) Handbook of National Accounting and Handbook of Input Output TableCompilation and Analysis United Nations New York

UNWTO (2008) Tourism Highlights United Nations World Tourism Organization New YorkUNWTO (2009) Tourism Highlights United Nations World Tourism Organization New YorkVavrla L and Rojicek M (2006) lsquoSystem of symmetric input output table compilation and

updatersquo Statistika pp 28ndash43World Travel and Tourism Council (2010) Travel and Tourism Economic Impact of Laos 2010 World

Travel and Tourism CouncilZhou D Yanagida JF Chakravorty U and Leung PS (1997) lsquoEstimating economic impacts

from tourismrsquo Annals and Tourism Research Vol 24 No 1 pp 76ndash89

193Tourism inter-industry linkages in Lao PDR

Appendix

Formulae for deriving different inter-industry linkages

1 CheneryndashWatanabe inter-industry linkages (Beynon et al 2009)

Σi Xij Σ

i Xij

BLi = ndashndashndashndash = ndashndashndashndashndashndashndash (1) Xj Σn

i Σni Xij

Σj Xij Σ

j Xij

FLi = ndashndashndashndash = ndashndashndashndashndashndashndash (2) Xi Σn

j Σnj Xij

where BLj = backward linkage of the jth sector Xij = amount of commodity i usedin the production of commodity j Xj = gross output of jth sector (column vectorsum of total intermediate purchases and gross value added) aij = IndashO coefficient (theamount of ith commodity used in the per unit production of the jth commodity) FLi

= Forward linkage of the ith sector and Xi = gross output of ith sector (row vectorsum of the intermediate and final demands)

2 RasmussenndashHirschman backward and forward linkages (Bonet 2005 Parreacute et al 2002Sonis et al 1995)

bjnBL = (Uj) = ndashndashndashndashndashndashndash (3) (I ndash A)ndash1

binFL = (Ui) = ndashndashndashndashndashndashndash (4) (I ndash A)ndash1

where Uj = BL = backward linkage index Ui = FL = forward linkage index(IndashA)-1= Leontief inverse matrix bj = column sums of the Leontief inverse matrix bi

= row sums of the Leontief inverse matrix b = total sums of the Leontief inversematrix and n = number of economic sectors in the matrix

The interpretations of linkages are as follows key sectors both BL and FL gt 1backward oriented sectors BL gt 1 and FL lt 1 forward oriented sectors BL lt 1 andFL gt 1 and weak sectors BL lt 1 and FL lt 1

3 Pure linkages (Bonet 2005 Sonis et al 1995a Sonis et al 1996b)

PBL = ∆r Arj ∆j Yj (5)

PFL = ∆j Ajr ∆r Yr (6)

where Ajj = squared matrixes of direct inputs of sector j Arr = squared matrixes ofdirect inputs of the rest of the economy (total minus sector j) Arj = direct inputsbought by the sector j from the rest of the economy Ajr = direct inputs bought bythe rest of the economy from sector j Yj = total output of sector j Yr = total outputof the rest of the economy ∆r = changes in output of the rest of the economy and∆j = changes in output of sector j

TOURISM ECONOMICS194

4 Weighted linkages (Drejer 2003)

1nΣniribij

Weighted backward linkages (Urj) = ndashndashndashndashndashndashndashndashndashndash (7) 1n2ΣiΣjribij

1nΣjrjbij

Weighted forward linkages (Uri) = ndashndashndashndashndashndashndashndashndashndash (8) 1n2ΣiΣjrjb

ij

where n = total number of economic sectors r = weight allocated to the economicsector Σ

j bij = sum of the row of elements of the Leontief inverse Σ

i bij = sum of the

column elements of the Leontief inverse and Σi Σ

j b

ij = sum of the overall elements ofthe Leontief inverse

5 IndashO multiplier product matrix (MPM) (Bonet 2005 Hewings et al 1998)

MPM = A = aij is the direct requirements of the IndashO tables (9)

MPM = B = bij is the Leontief inverse (SAM) matrix (10)

6 Self-sufficiency rate analysis (Asra et al 2006 Secretario et al 2009)

SSRj = XjTLDj (11)

where SSRj = self-sufficiency rate of sector j Xj = gross domestic output of the sectorj and TLDj = total domestic demand of the sector j