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OBELS WORKING PAPER NO.2

DECEMBER 2013

A Preliminary Study of Tourism Competitiveness in Thailand: An Approach to Revealed Comparative Advantage Index Thanasin Tanompongphandh Nathapornpan Uttama Thidarat Buadapthip Abstract This study aims to explore tourism competitiveness in Thailand and Asian countries. The revealed comparative advantage (RCA) measure is employed to analyze the comparative advantage in travel services as a proxy for tourism competitiveness. Using World Databank, the findings reveal that during 2009 to 2010, China performs a high ranking in travel service export with high positive normalized RCA. Comparing with ASEAN countries, from 2009 and 2010, Thailand has the highest ranking in travel services; meanwhile, Malaysia has strong comparative advantage performance in travel services, with a high NRCA ranking. However, it found that Lao PDR and Myanmar have weak competitive performance in travel services.

Keywords: Tourism, Competitiveness, Revealed comparative advantage JEL Classifications: F10, F14, C33

Office of Border Economy and Logistics (OBELS) Mae Fah Luang University, 333 Moo 1, Tasud, Muang, Chiang Rai, Thailand Email: mfuobels@gmail.com.

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1. Introduction Tourism services have long become a significant player in economic and social development, especially, being as a source of income and employment. According to UNCTAD Database, world services exports in 2011 rose by 10.6%, compared to 9.85% increase from the year before. Surprisingly, Thailand’s total exports of services in 2011 expanded at a pace greater than the world average, with an estimated growth of 18.89%. However, two main service exports of Thailand, transport and travel, showed the different direction of growth. The export of travel services augmented by 30.46%, whereas the transport services dropped by 2.45%. After global economic and financial crisis in 2009, it has the acceleration in travel exports/tourism services.

Moreover, the 2012 study by World Travel and Tourism Council (WTTC) found that expenditures in Travel and Tourism sector have made significant contribution toward Thailand’s GDP (Figure 1a). Its contribution is particularly large for the indirect effect, when compared among neighboring countries, highlighting the strong and significant linkages of many supporting industries. In terms of employment, WTTC’s study reveals significant employment effect (12%) from expenditures in Travel and Tourism sector with higher contribution from the expenditures in the indirect industries (Figure 1b).

Figure 1 Travel & Tourism (T&T) Expenditures, GDP and Employment by Selected Countries, 2011

b. T&T Expenditures and Employment a. T&T Expenditures and GDP Source: World Travel and Tourism Council (2012)

Another competitiveness’s measure of the tourism sector is an ability to draw higher purchasing power customers to the countries which Thailand was the leader until Singapore took over in

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2010 (Figure 2). Despite this setback, Thailand remains very competitive in the tourism sector due to continued Government supporting policy and high popularity in key travel destinations.

According to the aforementioned importance of tourism sector in Thailand, this paper aims to explore the competitiveness space for the Tourism industry in Thailand using the revealed comparative advantage (RCA) approach. The estimated results and major conclusions are exhibited in the following.

Figure 2: Average Travel & Tourism Expenditures per Tourist of Selected Countries, 2011

Source: World Bank Database

2. Empirical Approach This section presents the revealed comparative advantage approach and data collection employed to investigate the tourism competitiveness in Thailand and other selected Asian countries.

2.1 Revealed Comparative Advantage (RCA) Index The RCA index is measured as the percentage share of a given product in country’s exports over the share of a given product in the world exports (Balassa, 1965). In this study, revealed comparative advantage index is exploited to explain competitive performance of tourism services, measured as the percentage of a tourism service in Thailand’s exports over its share in the world exports:

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∑ ∑

,

∑ ∑

Where Xij are exports of product i from country j. When RCA is above unity, country i’s competitiveness in product j is greater than the average competitiveness or country i has comparative advantage. Moreover, this index is further developed by Yu et al. (2009) to a new measure called the normalized revealed comparative advantage (NRCA) index. The NRCA allows for comparisons across time, countries and sectors: (∑ ∑ ∑

)(∑ ∑ ∑

)

.

The NRCA index is -0.25 <NRCAij< 0 suggests that country i’s actual export of product j is lower than the comparative-advantage-neutral point, whereas 0 <NRCAij< 0.25 suggests that the country i has a comparative advantage in the export of product j.

In this study, there are five RCA index measures presented here: (a) RCA1 is measured as the percentage share of travel services in country’s exports, over the share of world travel services exports in the world exports. (b) RCA2 is measured as the percentage share of travel services in country’s services exports, over the share of world travel services exports in the world services exports. (c) RCA3 is measured as the percentage share of travel services exports in country’s GDP, over the share of world travel services exports in the world GDP. (d) NRCA1 and NRCA2 are measured as the normalized revealed comparative advantage RCA1 and RCA2, respectively.

2.2 Data source Data on tourism exports and related tourism exports: transportation, travel, and other services are obtained from World Bank Database. The dataset covers ten Asian countries (Cambodia, China, Laos, Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) during the period 2005 to 2011. The snapshot view is taken for 2005-2010, the year for which data are available for the largest number of countries in the sample.

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3. Empirical Results This section exhibits preliminary empirical results regarding tourism competitiveness in Thailand and other selected Asian countries using the revealed comparative advantage approach.

Table 1 shows various RCA indices used to explain competitive performance of tourism services of tem Asian countries. The findings reveal that using RCA measure and normalized RCA measure, Cambodia, Laos, Malaysia, Thailand and Vietnam have comparative advantage in tourism sector during the period 2008-2010, whereas China, Myanmar and Philippines have tourism comparative disadvantage.

Table 1: RCA Index in Travel Service Export of Thailand and neighboring countries, 2005-2010 Country

CAM

CHN

IDN

LAO

RCA1 RCA2 RCA3 NRCA1 NRCA2

3.6786 0.5265 0.8002 3.3996 2.9088 1.0773 1.6708 3.0070 7.4310 0.5306 0.6538 3.9057 0.0013 0.0437 0.0069 0.0004 0.0012 0.0372 0.0062 0.0004

RCA1 RCA2 RCA3 NRCA1 NRCA2

3.7335 2.9059 7.5671 0.0013 0.0012

0.5467 1.2207 0.5220 0.0409 0.0361

0.7733 1.6961 0.6896 0.0060 0.0055

3.5016 2.6859 3.1848 0.0003 0.0003

RCA1 RCA2 RCA3 NRCA1 NRCA2

4.0053 3.0154 7.5151 0.0013 0.0012

0.5412 1.1300 0.5753 0.0388 0.0333

0.9947 1.9695 0.9229 0.0073 0.0067

3.8515 2.7922 3.3275 0.0003 0.0003

RCA1 RCA2 RCA3 NRCA1 NRCA2

3.9176 2.7621 8.7858 0.0012 0.0011

0.6585 1.4484 0.8449 0.0388 0.0343

0.8577 1.2869 1.0417 0.0061 0.0051

3.4541 2.5064 3.3453 0.0002 0.0002

MYS 2010 1.5903 2.2507 5.1197 0.0187 0.0172 2009 1.5558 2.1887 5.4410 0.0175 0.0160 2008 1.3302 2.0529 4.3859 0.0154 0.0140 2005 1.0364 1.6623 4.2230 0.0121 0.0107

MMR

PHL

SGP

THA

VNM

0.1602 0.8038 0.6143 1.7621 1.1309 0.7976 0.7374 0.5083 2.3625 2.4015 0.1149 0.8759 4.2328 4.1961 2.8470 0.0001 0.0026 0.0137 0.0206 0.0045 0.0001 0.0018 0.0076 0.0190 0.0042 0.1464 0.7079 0.1139 0.0000 0.0000

0.8667 0.8432 0.9197 0.0025 0.0019

0.4728 0.3993 3.3937 0.0095 0.0040

1.6185 2.1262 4.0459 0.0178 0.0162

0.8901 2.1085 2.0854 0.0033 0.0031

0.1985 0.9188 0.1703 0.0001 0.0001

0.8855 1.0468 0.9157 0.0025 0.0020

0.5114 0.4394 3.6111 0.0101 0.0049

1.8150 2.2378 4.2534 0.0184 0.0169

1.1774 2.2832 2.7538 0.0039 0.0037

0.3122 0.9602 0.3733 0.0001 0.0001

0.9589 1.8414 1.4472 0.0031 0.0028

0.4091 0.4102 3.2610 0.0078 0.0030

1.3841 1.7711 3.5764 0.0133 0.0117

1.1779 1.9838 2.8624 0.0032 0.0029

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Table 2 shows the rankings of RCA travel service exports in 10 selected Asian countries for year 2009-2010. During 2009-2010, China performs a high ranking in travel service export with high positive NRCA. Comparing with ASEAN countries, from 2009 and 2010, Thailand has the highest ranking in travel service exports. In other words, Thailand is remarkably specialized in travel services among ASEAN member countries. Malaysia has also strong comparative advantage performance in travel service exports, with a high NRCA ranking. However, Lao PDR and Myanmar have weak competitive performance in travel services.

Table 2: RCA ranking of countries for travel service exports 2010 2009 Ranking RCA1 RAC2 RCA3 NRCA1 NRCA2 RCA1 RAC2 RCA3 1 CAM LAO CAM CHN CHN CAM CAM CAM 2 LAO CAM MYS THA THA LAO LAO MYS 3 THA VNM SGP MYS MYS THA MYS THA 4 MYS THA THA SGP SGP MYS THA SGP 5 VNM MYS LAO IDN IDN VNM VNM LAO 6 PHL IDN VNM VNM VNM PHL IDN VNM 7 IDN CHN PHL PHL PHL IDN CHN PHL 8 SGP MMR IDN CAM CAM CHN PHL IDN 9 CHN PHL CHN LAO LAO SGP MMR CHN 10 MMR SGP MMR MMR MMR MMR SGP MMR

NRCA1 NRCA2 CHN CHN THA THA MYS MYS SGP IDN IDN SGP VNM VNM PHL PHL CAM CAM LAO LAO MMR MMR

Note: (a) RCA1 denotes the percentage share of travel services in country’s exports, over the share of world travel services exports in the world exports. (b) RCA2 denotes the percentage share of travel services in country’s services exports, over the share of world travel services exports in the world services exports. (c) RCA3 denotes the percentage share of travel services exports in country’s GDP, over the share of world travel services exports in the world GDP. (d) NRCA1 and NRCA2 denote the normalized revealed comparative advantage RCA1 and RCA2, respectively.

3.1 Tourism Competitiveness in Thailand Indeed, the competitiveness of Thailand’s tourism services measures the degree of tourism services in terms of the specialization and improvement of the size of its tourism services exports to a certain market. Figure 3 exhibits the rankings of RCA travel service exports in selected Asian countries for the year 2010. Thailand has the highest RCA ranking in travel service exports and the receipts per foreign tourist. China and Indonesia have also strong comparative advantage performance in travel services, with a high RCA ranking. Even though, Lao PDR, A Preliminary Study of Tourism Competitiveness in Thailand

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Cambodia and Myanmar have strong competitive performance in travel service exports, there are low international tourism receipts.

Figure 3: RCA for tourism services and receipts per foreign tourist

Following to the results of the normalized revealed comparative advantage index (NRCA2), Figure 2 provides the competitive performance of six Greater Mekong Subregion (GMS) countries in 2010. The whiter the countries are shaded, the higher their revealed comparative advantage.

Dark grey signifies that the country has comparative disadvantage.

Figure 2: GMS Countries’ normalized RCA in Travel Service Export

Legend < 0.0024 0.0025-0.0125 > 0.0125

Source: http://www.maps-thailand.com/map-southeast-asia.php

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The results suggest that most GMS countries have comparative advantage or competitiveness in travel service exports. A half of the six GMS countries, China, Thailand and Vietnam reveal a high comparative advantage for tourism services or a high competitiveness for tourism business.

These results are confirmed by the Travel and Tourism Competitiveness Index and its competitiveness subindex: the regulatory framework, business environment and infrastructure and the human, cultural, and natural resources.

The Travel & Tourism Competitiveness Index (TTCI) developed by the World Economic Forum’s Industry Partnership Programme for the Aviation, Travel & Tourism sector in 2011 indicated that Thailand was ranked the forty-first in the world and the tenth in the region. The sources of Thailand’s competitiveness in tourism services are the rich natural resources and a strong affinity for Travel & Tourism, with a very friendly attitude of the population toward tourists (Blanke and Chiesa, 2011).

Table 2: Travel and Tourism Competiveness Index and Sub-index of Selected Asian Tourist Destinations, 2011 Countries Singapore Malaysia China Thailand Indonesia Vietnam Philippines Cambodia

TTCI 5.23 4.59 4.47 4.47 3.96 3.90 3.69 3.44

RF BEI HCN 5.72 5.39 4.59 4.71 4.35 4.72 4.52 3.84 5.06 4.45 4.32 4.64 4.21 3.33 4.35 4.28 3.31 4.12 4.18 3.18 3.69 3.92 2.73 3.67 Source: Blanke and Chiesa, 2011 Note: TTCI = Overall index; RF = Regulatory Framework index; BEI = Business Environment and Infrastructure index; HCN = Human, Cultural and Natural resources index

Assessment of the relationships between the competitiveness of the travel and tourism and its major dimensions at the level of the GMS tourist destinations (Table 2) illustrates that China and Thailand have very strong association with the overall competitiveness; the business environment and infrastructure; the specific regulatory framework; and the human, cultural and natural resources. Importantly, the available human resources and natural and cultural heritage contribute most significantly to the improvement of the travel and tourism competitiveness of China and Thailand. However, the relationship between comparative Advantage and T&T A Preliminary Study of Tourism Competitiveness in Thailand

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Competitiveness seems to confirm the tourism competitiveness for China and Thailand (Figure 2).

4. Conclusion This paper aims to measure the level of competitiveness in tourism services, in other words, degree of tourism services of a country in term of an improvement of size of its tourism services exports to a certain market. In general, change in tourism competitiveness is able to assess using revealed comparative advantage measurement. Hence, based on standard and new measures, this paper measures competitive performance of tourism service in selected Asian countries.

Data is obtained from the UNCTAD Handbook of Statistics 2012, available electronically (UNCTAD 2012) covering ten Asian countries between 2005 and 2011. The preliminary empirical results indicate that Thailand has the highest RCA ranking in travel service exports and the receipts per foreign tourist. China and Indonesia have also strong comparative advantage performance in travel services, with a high RCA ranking. Even though, Lao PDR, Cambodia and Myanmar have strong competitive performance in travel service exports, there are low international tourism receipts.

5. Reference Balassa B. (1965) Trade liberalization and ‘revealed’ comparative advantage. The Manchester School of Economic and Social Studies, 32:99-123.

Blanke, J., Chiesa, T. (2011) The Travel & Tourism Competitiveness Report 2011 Beyond the Downturn. World Economic Forum. Available at http://www.weforum.org/reports/traveltourism-competitiveness-report-2011.

UNCTAD (2012) UNCTAD Statistics Database 2012. United Nation Conference on Trade and Development. Available at http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx WEF (2012) The ASEAN Travel & Tourism Competitiveness Report 2012 Fostering Prosperity and Regional Integration Through Travel and Tourism. Insight Report, World Economic Forum.

Yu R., Cai J., Leung P-S. (2009) The normalized revealed comparative advantage index. The Annals of Regional Science, 43(1):267-82.

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