Economic Impact of Tourism on Fiji's Economy: Empirical Evidence from the Computable General Equilibrium Model

Abstract

Tourism is Fiji's largest industry, earning over F$500 million in foreign exchange and employing around 40,000 people. The tourism industry over the last decade has grown at an annual rate of 10-12%. The expansion of tourism, which generates more expenditure in the economy, is likely to have implications for other industries. In this paper, the aim is to delineate the long-run impact of a 10% increase in tourist expenditure on Fiji's economy. To achieve this, the author uses a computable general equilibrium model. Among the key findings are that a 10% increase in tourist expenditure in Fiji will increase GDP by 0.5% and contribute to an improvement in the balance of payments, real consumption will increase by 0.72% and real national welfare will increase by 0.67%. It is also found that an expansion of tourism will lead to an appreciation of the exchange rate, together with an increase in domestic prices and wage rates, and so traditional export sectors will experience a decline in their export competitiveness. In Fiji's case there is evidence that the increases in tourism and non-traditional exports outweigh the fall in non-traditional exports caused by an expansion of tourism.