Canada’s unexpected export driver? Tourism.
Deloitte research finds strengthening tourism industry would boost trade and the economy
A $100-million rise in tourist spending generates $69 million in indirect spending (more than automotive, mining or oil & gas). Canada needs more visitors.
Toronto, November 14, 2013 — Strengthening the Canadian tourism industry would significantly impact the Canadian economy, according to new research released today by Deloitte. The report, Passport to growth: How international arrivals stimulate Canadian exports, identifies that an increase in international arrivals to Canada spurs exports in the subsequent years.
Deloitte analysis, using Canadian data and established empirical techniques, suggests that each 1% increase in tourists to Canada generates an $817-million increase in Canadian exports over the following two years. Deloitte also found that this increase in travel would increase the range of Canadian goods exported by 0.27% for each 1% increase in international arrivals.
The report explains that when people travel, there is opportunity to connect face-to-face and deepen business relationships, which in turn opens up pathways to new markets. And travel — both leisure and business — creates demand for domestically produced goods by introducing people to local products.
The link between tourism and productivity
“It’s clear that strengthening tourism would have a positive impact on Canadian companies and our overall economy,” says Ryan Brain, partner and Deloitte’s Consumer Business Leader in Canada. “What’s more, an increase in travellers to Canada could encourage Canadian companies to enter new markets internationally and experience greater competitive intensity, which we know results in periods of high productivity growth positively impacting the economy”
Deloitte’s previous research in Canadian productivity shows that when firms compete on the global stage, they experience higher growth and more innovation, because they must make investments in the known drivers of productivity — research and development, machinery and equipment, and information, communication and technology — to be competitive. This competitive pressure might not be felt if they restricted themselves to the domestic market.
Tourism significantly impacts Canada’s economy
While accounting for just 2% of Canada’s GDP, the indirect impact of the tourism industry on the rest of the economy is significant. According to Statistics Canada, a $100-million increase in tourism direct spending would generate $69-million in indirect spending — more than the same increase in direct spending would generate for automotive manufacturing ($51-million), mining ($50-million) or oil and gas extraction ($41-million).
“We may overlook tourism as an important economic driver, because it’s less tangible; you can see an auto plant, a refinery or a mine,” says Mr. Brain. “Yet the indirect impact on our economy is sizeable.”
Canadian tourism industry struggling to compete
40 Years ago, Canada was one of the most popular international tourist destinations, second only to Italy. Today, having lost 20% of its international visits since 2000, Canada is ranked eighteenth behind countries like Ukraine and Saudi Arabia. Deloitte analysis suggests that had Canada’s 2011 international arrivals grown at the same rate as the U.S., Canadian export volumes would have risen by $4.1 billion, which is nearly as much as Canada exports to Brazil and Russia combined ($4.3 billion).
“Given the link between inbound travelers and exports, if Canada were to regain its former popularity as a tourist destination, the positive impact on the economy would be significant,” says Mr. Brain. “There is a real opportunity here. Investing in Canadian tourism is about much more than strengthening the sector alone. It’s about making our entire economy stronger and more productive and that means real benefits for Canadians today and well into the future.”
About the research
Passport to growth: How international arrivals stimulate Canadian exports examines the connection between exports and international arrivals by applying two existing analysis methodologies (Granger causality test and the trade-weighted gravity model) and replicating the analysis using Canadian data from Statistics Canada.
Download a copy of Passport to growth: How international arrivals stimulate Canadian exports
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