Economic impact of tourism in the Mauritian economy

Economic partake of touristry in the Mauritanian economy4.1 incomingTourism is a study pillar of the Mauritian economy. According to estimates for 2010, the tourism industry has contributed Rs 39,456 million to the Mauritian economy and has provided direct employment to 27,161 workers. The piece of tourism to gross national product at basic determine stands at 7.4% in 2010. This fact is indicative of the importance of the tourism sector to the Mauritian economy.To try the cushion of tourism on scotch harvest-tide in Mauritius, a log- bilinear baffle go forth be estimated. However, stinting harvesting may not be influenced only by tourism, but there be to a fault other macro sparing factors which may have an effect on growth. As such, these factors will be taken into consideration in the precedent. The model exists of standard inconsistents such as Investment (INV), Exports (EXP) and pomposity (CPI), as salubrious as one variable (TRP) which will be utilize to determine the impact of tourism, such as tourism notices. Real gross domestic product per capita is used as a reference variable in invest to contend the impact of tourism on economic growth.4.2 Types of info4.2.1 chief(a) selective informationPrimary data is collected on source and is not been subjected to processing or any other manipulation. The most common methods to collect primary data consist of surveys, interviews and focus groups. As such, primary research entails the use of contiguous data and is collected by the researcher particularly to meet up the research objective of the subsisting project.Making use of primary data implies that researchers are collecting t all(prenominal)ing for the specific purports of their study. As such, the questions the researchers ask are adapt to extract the data that will help them with their study. However, it is era consuming and dearly-won to collect such data.4.2.2 Secondary DataSecondary data consists of pre-existent in formation which is not gathered for the purpose of the current research. Secondary data is readily available and inexpensive to obtain. In addition, such data sess be examined all over a longer flowing of season. Secondary data includes information from the census, a companys financial position and safety records such as their injury rates, or other government statistical information such as the number of workers in different sectors.In secondary data, information relates to a past period and as such, it lacks aptness and has unsatisfactory value. The drawback is that very much the reliability, accuracy and integrity of the data is uncertain. However, it is easier to collect such data and longitudinal study may be possible.4.3 Model SpecificationA honest log-linear Cobb-Douglass harvestingion function is used to measure the impact of tourism on economic growth in Mauritius. The equation is as followsgross domestic product = f (INV, TRP, CPI, EXP)Consider the following model, known as an exponential regression modelGDPt = 0 INVt 1 TRPt 2 CPIt 3 EXPt 4 e t (4.2.1)which may be denotative alternatively aslnGDPt = ln0 + 1lnINVt + 2lnTRPt + 3lnCPIt + 4lnEXPt + t (4.2.2)where ln is the natural log (i.e log to the base e, and where e = 2.7183)Equation 4.2.2 open fire be written aslnGDPt = C + 1lnINVt + 2lnTRPt + 3lnCPIt + 4lnEXPt + t (4.2.3)where C = ln0Therefore, the transformed model isln GDPt = C + 1 ln INVt + 2 ln TRPt + 3 ln CPIt + 4 ln EXPt + tWhere ln GDP record of real gross domestic product per capitaln INV Log of investmentln TRP Log of tourism receipts per capitaln CPI Log of consumer price index used as a proxy for ostentatiousnessln EXP Log of exportsC Constant termt White fraudulent scheme disturbance termIn the above log-linear model, the dependent variable, GDP, is expressed as a linear function of four other independent variables, similarly known as the explanatory variables, namely INV, TRP, CPI and EXP. It is often off-key for su ch log-linear model that the causal kinds which may exist, flow only in one direction, namely from the explanatory variables to the dependent variable.The parameters of the model can be estimated by development the Ordinary Least Square method, if the assumptions of the classical linear regression model are fulfilled. As such,GDPt* = C + 1 INVt* + 2 TRPt* + 3 CPIt* + 4 EXPt* + twhere GDPt* = ln GDPt, INVt* = ln INVt, TRPt* = ln TRPt, CPIt* = ln CPIt, EXPt* = ln EXPtThe coefficient of each of the four explanatory variables measures the incomplete elasticity of the dependent variable GDP with respect to that variable. As such, each of the partial regression coefficient 1, 2, 3 and 4 are the partial elasticities of GDP with respect to variables INV, TRP, CPI and EXP respectively.4.4 Explanation of Variables4.4.1Gross home(prenominal) Product (GDP)Gross Domestic Product is used to assess the market value of all net bullys and services produced during a given period of time within an economy. It in like manner measures the total income of an economy and as such, it is often correlated with standard of living. GDP is used as a reference variable in order to assess the impact of tourism on economic growth in Mauritius. GDP is an important factor used to analyse the development of the tourism sector. As such, in case the tourism sector brings huge unusual earnings, there will be an increase in GDP, suggesting that the economy is flourishing. The GDP figures that are used for the regression have been adjusted for fanfare using the GDP deflator.4.4.2 Investment (INV)Investment, which is a major component of the gross domestic product of an economy, refers to the acquisition of new capital goods. A positive revision in investment may lead to a positive pitch in income and breakput of an economy in the short run. Higher level of investment may contribute to fuse demand while high level of income may indirectly impact on consumer demand. Investment, which is an injection in the circular flow of income, is a useful tool to analyse the impact of tourism on the economy of Mauritius.Investment is expect to have the equal impact on economic growth as propounded by observational literature, such as Sargent and James (1997) who found a positive impact of physical capital and investment on growth in Canada over the period from 1947 to 1995.4.4.3 Tourism Receipts (TRP)Tourism receipt is a major indicator of the contribution of the tourism sector to the local economy. Tourism receipt represents an inflow of foreign currency in the economy. Such receipts musical score for a major contribution to the gross domestic product of the Mauritian economy. As such, an increase in tourism earning is anticipate to have a positive impact on GDP.Most governments in developing countries gain ground international tourism because such tourists bring capital to the country. Earnings of currencies licence governments to finance, at least in part, their develo pment efforts.Tourism receipt is expected to impact positively on economic growth as postulated by Balaguer and Cantavella-Jorda (2002) or Dritsakis (2004) who claimed that economic growth and tourism are interrelated and launch tourism as a driver of economic growth.4.4.4 Inflation (CPI)Inflation is defined in economics as a rise in the general level of prices of goods and services in an economy over a period of time. As such, it is a sustained increase in the price level and it may be the consequence either of constant move in aggregate supply or recurring increases in aggregate demand. As a result, puffiness erodes the purchasing power of money, that is, there is a loss of real value in the internal medium of win over and unit of account in the economy.An important measure of price inflation is the inflation rate, which can be calculated by taking the annualised pct change in a general price index over time. This is referred to as the Consumer Price Index (CPI). In Mauritius, the Consumer Price Index is measured by computing the average change over time in the cost of a fixed basket of consumer goods and services. It represents changes over time in the general level of prices of goods and services acquired by Mauritian consumers. Inflation is so calculated by comparing the average level of prices during a 12-month period with the average level during the preceding 12-month period.One of the most fundamental objectives of macroeconomic policies of many countries, whether industrialised or developing, is to sustain high economic growth together with low inflation. Inflation can bring about hesitation about the future profitability of investment projects particularly when high inflation is also linked with increased price variability. This would in turn receive more conservative investment strategies, which would ultimately result in dismay levels of investment and economic growth.Inflation is expected to have a interdict effect on growth as claimed b y Barro (1995) who explored the inflation-economic growth descent using a large sample covering more than ampere-second countries from 1960 to 1990.4.4.5 Exports (EXP)Export entails the sale of goods and services produced in one country to other countries. There are two types of exporting direct and indirect. For national accounts statistics, exports consist of transactions in goods and services from residents to non-residents. As such, an export of a good represents a change of ownership from a resident to a non-resident this does not necessarily imply that the good in question physically crosses the frontier while an export of services consists of all services rendered by residents to non-residents.The relationship between export growth, foreign direct investment and economic growth in both developed and developing countries is a question that continues to be of considerable interest. Cross-country trade and capital flows and interpreting the significance of these activities to wards economic growth lie at the heart of the debate on economic development policy since the early literature on export and economic growth.Export is expected to impact positively on growth as postulated by Feder (1982), who mentioned that exports contribute to economic growth in a salmagundi of ways economies of scale and incentives for technological improvement. Thus, marginal factor productivities are expected to be higher in export industries than in non-export industries.4.5 Data SourcesFor the purpose of this study, time series data has been used. A time series is an tell chain of values of a variable at equally position time intervals. Time series summary is used for economic and gross revenue forecasting, budgetary analysis, inventory studies or stock market analysis. It encompasses techniques to investigate data in order to extract meaningful statistics and other characteristics of the data.A time series model indicates that observations close together in time will be m ore closely correlated than observations further apart. As such, time series models use the natural one-way ordering of time so that values for a given period can be expressed as deriving in some way from past values.Data has been collected for the period 1976 to 2009. Figures for the explanatory variables namely investment and exports and that for the dependent variable real gross domestic product were obtained from the Central Statistical Office. Data for inflation and tourism receipts was obtained from annual reports of the Bank of Mauritius.4.6 SoftwareThe analysis of data will be done using the Microfit 4.0 software. Before carrying out the regression, the stationarity of the variable should be tested in order to avoid misbegotten results and invalidity of the model. The ARDL model will be evaluated. Furthermore, a co-integration test shall be performed to determine if an Error Correction Model (ECM) must be used.