Computable general equilibrium modelling: An important tool for tourism policy analysis

Abstract

Purpose – Economic impact analysis in tourism has recently undergone a profound change in approach. In contrast to earlier emphasis on input-output (I-O) models, computable general equilibrium (CGE) models, are being used worldwide to estimate the resulting net macroeconomic and industry effects and for tourism policy analysis. The purpose of this paper is to provide an overview of the role that computable general equilibrium modelling is playing and can play in estimating the economic impacts of tourism shocks and in tourism policy formulation and implementation by destination managers. Design – The study discusses the nature of CGE modelling to project the economic impacts of tourism demand shocks, comparing its advantages over standard I-O analysis. It then identifies several studies where CGE analysis provides insights to tourism researchers that could not be revealed using the standard I-O technique. The importance of CGE analysis for tourism policy analysis is highlighted Methodology and Approach – The study reviews important contributions to CGE modelling in tourism contexts, including many of the authors publications Findings – The paper discusses applications of CGE modelling to tourism, identifying several areas where tourism analysis and policy have been suitably informed as a result of such modelling. Particular insights that CGE modelling has brought to tourism planning, forecasting and policy analysis are identified. Originality of the research – Due to its technical nature, tourism researchers are generally unaware of the advantages of CGE modelling compared to standard economic impact analysis using I-O models. This study identifies and discuss the key reasons why CGE modelling should be accorded greater attention by governments and their agencies, consultants and researchers associated with tourism analysis and policy.