Tourism shocks, vulnerabilities and resilience in a small island economy : the case of Corsica

Marie-Antoinette Maupertuis & Sauveur Giannoni,

Université de Corse, UMR CNRS 6240 LISA

International Symposium Tourism specialization and vulnerability, 4-6 December 2014 La Réunion

Introduction

• Corsica is a small island of the Mediterranean with less than 400 000 inhabitants

• Each year Corsica hosts more than 3 millions tourists (3.2 in 2013)

• Tourism accounts for 14% of the value-added, 25% of the exports and is the first private sector industry of the regional economy

• 75% of the tourism arrivals are related to inbound tourism

Introduction

• Corsica, as often for islands, exhibits numerous vulnerabilities due to small size, transport costs, exposure to external shocks, etc.

• For instance, in July 2014, the marine transport has been suspended for 3 weeks due to a strike of the employees of the biggest shipping company

• Consequences: fall in tourism demand, no freight, emergence of a de facto monopoly situation of the other shipping company and important social impacts

• This kind of problems are rather frequent and a theoritical analysis needs to be implemented in order to support adequate economic policy making.

Introduction• In this paper, two hypothesis are formulated:

1.A structural vulnerability of Corsica due to both failures in the external transport system and to the dependance to tourism sector exists

2.Public spendings seem to be the source of some kind of resilience capacity

• In order to test these hypothesis, two strands of literature are mobilized:

Systemic analysis (Holling,1973 , Le Moigne 1977, Galopin 2006, Walker 2004)

Computable General Equilibrium Modeling applied to Corsica

What about vulnerability of SIE ?In a systemic perspective, vulnerability is an internal property of a system due to exposure to its environment (Walker, 2004, Gallopin, 2006).

For instance in economy, when the trade openness or dependance increase, the system is more vulnerable ceteris paribus

The literature retains various sources of vulnerability for SIE following the seminal work of L. Briguglio (1995)

The UN Vulnerability Index covers 7 dimensions : size, distance to international markets, sectoral concentration of exports, share of agriculture/fishing in PNB, etc.

Recently Goavec and Hoarau (2012) differenciated external shocs (natural vs commercial) and exposure (size, distance to market, economic specialization)

And resilience ?

From Holling (1973), the concept has been well diffused but it is very confused

Two kinds of resilience are identified for social systems (Walkers, 2004) :

1.Resilience as absorbtive capacity : the system resists and some internal mechanisms play as perturbations absorbers (resistance ?)

2.Resilience as adaptative capacity (Gallopin, 2006) : the system adjusts to the perturbation

Small attention has been devoted to the application to SIE.

Briguglio and al. (2006) built a resilience index covering macroeconmic stability, market efficiency, good governance and environmental and social conditions.

Our question

Is it possible for a SIE such as Corsica specialized in tourism and exposed to various external perturbations (transport strike, fall in tourism demand) to be resilient ?

And, if it exists, which kind of resilience would it be ?

The structure of Corsica’ value-added (2009)

The computable general equilibrium model of Corsica

• The model for Corsica is an adaptation of the standard IFPRI Model

• The model is static

• The SAM (reference year 2009) includes 15 sectors

• The SAM has been built in order to integrate two specific sectors : transport and tourism (accomodation and catering)

• Institutions include both government and local collectivities

Closure procedureEquilibrium Closure procedure

S-I The level of savings determines the level of investment.

Payment Balance Flexible exchange rates and fixed foreign savings

Public finances (local and government) Flexible savings and fixed direct tax rate.

The Social Accounting MatrixActivités Produits

(17 postes) (17 postes) Tavail Capital

Activités (17 postes)Production

vendue

Produits (17 postes)Achats

intermédiaires

Consommation des ménages

Dépenses d'invest.

Coûts de transport +

marges

Reversement des

marges

Tavail

Capital

ISF & IR IS

TVA & TIPPTVA & impôts

production

Taxes foncières & pro.

Taxe d'habitati

onTaxes transport

et tabacSubventions Etat

(en négatif)Financements

subventions

Subventions CL (en négatif)

Sub. Continuité Territoriale fret

(en négatif)

Financements subventions

Cotisations sociales

patronales

Transferts publics bruts

Transferts Etat aux CL

SalairesPrestations

socialesPrestations

socialesBénéfices distribués

Rémunération du capital

Surplus RdF Surplus CL Epargne Epargne

Importations

Reversement des impôts nationaux

Reversement des impôts locaux

ExportationsAchats et consommations

publics

Taxes de séjour

Collectivités locales

Ménages

Entreprises

Epargne-Investissement

Valeur ajoutée

Marges commerciales et de

transport

Taxes indirectes locales

Subventions Etat

Subventions CL

RdF

RdM

Etat

EntreprisesEpargne-

Investissement

Facteurs

Taxes directes Etat

Taxes indirectes Etat

Taxes directes locales

Marges commercial

es et de transport

RdF RdM EtatCollectivités

localesMénages

Facteurs Taxes directes

Etat

Taxes indirectes

Etat

Taxes directes locales

Taxes indirectes

locales

Effects of a raise in transport costs 1/3

Aggregate (real terms)

Variation in %

GDP -0.245Private Consumption

-0.384

Investment -1.7Exports +0.25Imports -0.6Indirect Taxes -2.29

The first simulation assumes a 10% increase in the cost of joining Corsica by any means for a person or for a commodity

Effects of a raise in transport costs 2/3Sector Variation in %

Agriculture + 0,047Mining Industries -0,143Food + 0,315Other industries + 0,116Construction -1,069Trade + 0,241Transportation + 0,843

Accomodation andCatering

+ 0,018

Information communication -0,239Banking/insurance -0,004Real estate -0,014Activités spécialisées -0,17Public Sector 0,005Other services -0,196Total -0,058

Effects of a raise in transport costs 3/3

• There is a clear negative effect on the activity of sectors such as construction that are heavily dependant on imported inputs

• Some sectors such as food production experience positive effects. The point is that these sectors use local inputs that are less expensive,

• There is an intersectoral transfer of resources

• The paradox is that the total value-added declines a bit but the local foundations of the productive system are in some ways strenghtened

Effects of a slow down in tourism 1/3

Aggregate (real terms) Variation in %GDP -0,38Private Consumption -0,49Investment + 0,43Exports -3,57Imports -1,32Indirect Taxes -2,76

A 20% fall in accomodation and catering demand is then simulated in order to test the effect of a shock similar to the one occured in July 2014

Effects of a slow down in tourism 2/3Sector Variation in %Agriculture 0,307Mining Industries -0,299Food 1,735Other industries 1,978Construction 0,413Trade 1,362Transportation -0,065Accomodation andCatering -6,252Information communication 0,274Banking/insurance 0,117Real estate -0,027Activités spécialisées 0,283Public Sector 0,033Other services -0,32Total -0,168

Effects of a slow down in tourism 3/3

• The external trade balance is direcly impacted as an evidence by the fall in exports and by the fall in imports due the diminution of tourism receipts

• An interesting issue is a significative positive effect on investment that in our view reflects part of the cost of adaptation to the shock

• As before, the total value-added is expieriencing a limited decline

• A most important issue is that even if sectors related to tourism as the transport sector are negatively affected, again the food sector, agriculture and trade sector counterbalance the negative effects of the tourism shock

Effects of a slow down in government spendings 1/3

Aggregate (real terms) Variation in %

GDP -0,415

Private Consumption -1,5

Investment -8,18

Exports +2.65

Imports -2,96

Indirect Taxes -2,02

Then a 10% fall in government spendings is simulated in order to assess the dependency to public support

Effects of a slow down in government spendings 2/3

Sector Variation in %Agriculture +0,57Mining Industries -0,56Food +3,13Other industries +1,797Construction -5,248Trade +2,177Transportation -0,247Accomodation andCatering +0,25Information communication -0,94Banking/insurance +0,01Real estate -0,06Activités spécialisées -0,65Public Sector +0,011Other services -0,89Total -0,27

Effects of a slow down in government spendings 3/3

• The dependance to government spendings is real : the value-added experiences an important decline

• Compensation mechanisms still exist but seem to be less effective

• An illustration of this strong dependance to government spendings is the negative effect of the cut in public tranfers on the construction sector

• As predicted by Vellutini (2004), this illustrates some kind of Dutch disease related to public spendings

Conclusion

In the short run, the effects of a shock on transport costs and on tourism demand are globally negative

But the economy seems to be able to absorb these shocks through :

1.A mechanism of transfer between sectors : regional-based sectors are expending

2.A mechanism of government-led absorption of the shock

Resilience of the Corsican economy to external shocks seems to be in fact the result of a publically supported resistance mechanism

Limits

• Our approach lacks an underlying theoritical model in order to explain the adjustment mechanism of the economy: what is the path toward resilience?

• Some more empirical research has to be done in order to improve the estimation of specific elasticities

Thank you for your attention !