Tourism & poverty reduction the case of ecuador manuel rivera

Tourism & poverty Reduction:

The case of Ecuador ESTC15 CONFERENCE April 30, 2015, Quito, Ecuador

manuel rivera Ph.D.

What is poverty?

•How would you define being poor?

•¿Como defines ser pobre?

Why am I here?

• Quantify the potential of tourism for Ecuador • View Tourism as a potential catalyst for Growth and Poverty reduction • Test a new paradigm for tourism development and use Ecuador as a case study

Poverty Paradigms

th room for a 5 Paradigm?

• Tourism-Growth Poverty Obliteration Paradigm POP: • Tourism can have a direct or indirect impact (via economic growth) on the level of poverty.

• It’s grounded in terms-of-trade opportunities.

• Holistically capture the relationship among tourism, economic growth, well-being and poverty.

Poverty Obliteration Paradigm-POP

Pro Poor Growth (feedback effects) • Economic growth may also benefit tourism growth through higher marketing efforts and investments in the tourism infrastructure.

• Both tourism growth and economic growth enter the well-being system of residents through income effects • either through jobs or transfers from the government.

①Basic Needs • Basic and social needs must be seen as the first step in developing pro poor growth.

• These are the foundations or first pillars to move people away from poverty.

• ‘Some functionings are very elementary, such as being adequately nourished, being in good health, etc., and these may be strongly valued by all, for obvious reasons’ (Sen).

②Social Arrangements • Invigorate societies’ interest and influence existing social arrangements, rules, and choices.

• This is observed by gaining power and voice.

• This conference is an example!!!

③Resources • Reconfigurations should take place in order to:

• mitigate against inequality • lifted out of poverty through greater accessibility of basic needs and resources.

• From a pro poor perspective, efforts must be directed to ensure that no harm is caused to the individuals.

④inequality •Although an increase in average income reduces poverty, any increase in inequality will intensify it.

⑤Poverty • Nowadays, the impression is that poverty, in many developing countries has remained at higher levels or practically unchanged due to increases in income inequality. • Tourism and the Poverty Obliteration Paradigm also considers well-being as the second important element that should enhance the life of the poor.

⑤wellbeing • Individual’s well-being covers a whole spectrum of life situations, including income, freedom and happiness.

• Subjective approach to give voice to the poor

The value of POP‌.. •We claim that the relationship among these three domains is a dynamic one shaping the direction between tourism and the POP paradigm.

Testing the POP in Ecuador • We will discuss the results according to the three standards of pro-poor growth: • namely reduction of the number of absolute poverty • enhancement of the quality of life of the poor • The happiness of the poor

the empirical nexus : Research Questions 1.

2.

3.

4.

5.

6.

Can Tourism drive Economic Growth in Ecuador?

Can Tourism reduce Poverty in Ecuador?

Can Economic Growth reduce poverty?

Can Tourism drive Human Development in Ecuador?

Can Tourism influence wellbeing?

Are the poor in Ecuador Happy and Satisfied with Life?

What did we do…..

• Qualitative Research (Focus groups and Interviews) • Longitudinal Research • Survey Research (focus on the poor) • Cointegration & Error Correction Techniques • Social Accounting Matrix

Methods & Data (economic & Poverty) • Tourism Development is measured via Arrivals (yearly) • Better proxy due to lack of data on tourism receipts

• Economic Growth is measure by GDP growth (yearly)

Methods & Data (poverty) • Poverty is measured with the Sen Poverty Index • Axiomatic measure that considers: • Poverty Headcount • Gini • Income Shortfall

• Value closer to zero is better (less poverty)

Methods & Data (wellbeing) • Human Development measured by HDI (UN) • Wellbeing measure by considering happiness scales and satisfaction with life scales. (Mexico, Costa Rica, Ecuador)

Can Tourism drive Economic Growth in Ecuador?

Tourism-growth nexus

Tourism drives Economic Growth? • We found that a 1% increase in tourism arrivals improves economic growth by .50% in the long term for the case of Ecuador (nominal not current). • As for the short term effects, the coefficient of .069 is not significant.

Is it possible?

• Ecuador had 1,406,000 arrivals in 2014 • 1% increase equals 14,060 arrivals in 2015 • 292 tourists per week

•Will help increase economic growth by .50%

How fast Tourism drives Growth?

Causality (Tourism & Growth)

Tourism

Economic Growth

Causality (Tourism & Growth) • Tourism will also benefit from an increase in economic growth from other sectors. • In Ecuador we see a dual feedback and tourism contribution is also evident from positive externalities and economic linkages.

Can Tourism reduce poverty in Ecuador?

Tourism poverty nexus

Tourism-Poverty nexus • We found that a 1% increase in tourism arrivals reduces poverty by .54% in the long term for the case of Ecuador. • However the question is, is this achievable?

Tourism-Poverty nexus • Consider a 1% increase in tourism arrivals or 14,060 • Or 1,171 tourists per month will help reduce poverty!!!

• In other words, assuming a 88% load factor:

•Need 5 additional Boeing 757-300 flights per month!

Tourism poverty nexus

Causality (Tourism & poverty)

Tourism

Poverty

Can growth reduce poverty in Ecuador?

Growth poverty nexus

Growth poverty nexus •Reduces poverty (short and long term) • In the long run, a 1% increase in economic growth reduces poverty by .63% • In the long run, a 1% increase in economic growth reduces poverty by .24%

Growth poverty nexus • Dual mechanism to fight poverty is evident! • Tourism has the potential to indirectly reduce poverty by contributing to economic growth.

Growth poverty nexus

Causality (growth & poverty) Economic Growth

Poverty

How much $$ can tourism give the poor?

We did an experiment…..

• What is the impact of a $10 million shock to the poor?

• Which sector serves the poor better?

• Tourism • Agriculture • Manufacturing

The Experiment……

ACT AGRICULTURE ACT MINING ACT MANUFACTURING ACT TRANSPORTATION ACT COMMUNICATIONS ACT CONSTRUCTION ACT SERVICES Total Output

Tourism Impact ($) $1,139,957 $1,833,997 $2,902,407 $2,678,237 $636,134 $277,669 $13,840,663 $23,309,064

Agriculture Impact ($) $9,285,985 $1,669,584 $3,603,156 $1,748,732 $700,837 $239,473 $10,160,755 $27,408,522

Manufacturing Impact ($) $1,852,061 $1,404,930 $8,070,250 $1,271,699 $509,563 $178,785 $7,833,381 $21,120,669

How much goes to the poor?

Urban 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Total Urban Rural 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Total Rural

TOURISM $1,020,111 $1,480,304 $1,789,661 $2,344,593 $5,253,749 $11,888,419 TOURISM $200,801 $281,350 $358,751 $490,452 $914,383 $2,245,737 $14,134,155

∆ Income 0.046% 0.046% 0.045% 0.044% 0.039% 0.042% ∆ Income 0.048% 0.046% 0.046% 0.046% 0.041% 0.247% 1.41

AGR $1,127,528 $1,635,229 $1,973,651 $2,579,314 $5,734,343 $13,050,065 AGR $221,866 $310,912 $396,730 $542,505 $1,002,925 $2,474,938 $15,525,003

∆ Income 0.051% 0.050% 0.049% 0.048% 0.043% 0.046% ∆ Income 0.053% 0.051% 0.051% 0.051% 0.045% 0.272% 1.55

MANUF $743,549 $1,093,475 $1,343,940 $1,793,923 $4,228,010 $9,202,896 MANUF $143,953 $204,860 $262,483 $359,028 $706,992 $1,677,315 $10,880,212

∆ Income 0.034% 0.034% 0.034% 0.033% 0.031% 0.033% ∆ Income 0.034% 0.034% 0.034% 0.034% 0.032% 0.185% 1.09

How much goes to the poor?

Urban 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Total Urban Rural 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Total Rural

TOURISM $1,020,111 $1,480,304 $1,789,661 $2,344,593 $5,253,749 $11,888,419 TOURISM $200,801 $281,350 $358,751 $490,452 $914,383 $2,245,737 $14,134,155

∆ Income 0.046% 0.046% 0.045% 0.044% 0.039% 0.042% ∆ Income 0.048% 0.046% 0.046% 0.046% 0.041% 0.247% 1.41

AGR $1,127,528 $1,635,229 $1,973,651 $2,579,314 $5,734,343 $13,050,065 AGR $221,866 $310,912 $396,730 $542,505 $1,002,925 $2,474,938 $15,525,003

∆ Income 0.051% 0.050% 0.049% 0.048% 0.043% 0.046% ∆ Income 0.053% 0.051% 0.051% 0.051% 0.045% 0.272% 1.55

MANUF $743,549 $1,093,475 $1,343,940 $1,793,923 $4,228,010 $9,202,896 MANUF $143,953 $204,860 $262,483 $359,028 $706,992 $1,677,315 $10,880,212

∆ Income 0.034% 0.034% 0.034% 0.033% 0.031% 0.033% ∆ Income 0.034% 0.034% 0.034% 0.034% 0.032% 0.185% 1.09

Can this be done?

• Using a conservative profile of $2,000 per tourist\trip • You need 5,000 tourists…..

• We already know that 14,060 (1%) is feasible • This impact is very conservative • Therefore tourism can provide $$$$ to the poor • Tourism helps the democratization of the dollar!

Can tourism increase HDI in Ecuador?

Tourism-HDI nexus

Tourism-HDI nexus • The imbalance between human capital progress and tourism could be an indicator that the economy has not been able to absorb human capital and is characterized by a high incidence of informality.

• However, when we look a the causality relationship this is further confirmed…

Causality (growth & poverty)

HDI

Tourism

Are the poor happy in Ecuador?

Tourism with a Human Face All

Mexico

Ecuador

Mean

Mean

Mean

Health

2.82

Lower

Higher

Education

4.15

Lower

Higher

Close to family

4.42

=

=

Work

4.59

=

=

Money

5.03

Higher

Lower

Food

5.03

Lower

Higher

Friends

6.15

Higher

Lower

Less violence

6.72

=

=

Recognition

7.88

=

=

Leisure time

8.22

Higher

Lower

Items

What is important in life?

Tourism with a Human Face Satisfaction with Life Satisfaction with Life In most ways my life is close to my ideal The conditions of life are excellent I am satisfied with life So far I have gotten the important things I want in life If I could live my life over, I would change almost nothing

MEX M 3.61 3.6(b) 3.89 3.78(b) 3.43(a,b)

ECU M 3.46 3.55(b) 3.81 3.7(b) 2.86

a-Different that Ecuador; b-Different than Costa Rica; c- Different than Mexico

CR M 3.58 4.06 3.83 3.35(a) 4.11(a)

Sig. 0.15 0.00 0.59 0.00 0.00

Tourism with a Human Face Subjective Happiness Subjective Happiness In general, I consider myself (A happy person-Not a happy person) Compared to most of my peers, I consider myself (More Happy) Some people are generally very happy. (Not at all to A great) Some people are generally not very happy. (Not at all to A great)

MEX M 3.72(b) 3.84(a) 3.66(b) 3.95(a)

ECU M 3.73(b) 3.6 3.65(b) 3.57(b)

a-Different that Ecuador; b-Different than Costa Rica; c- Different than Mexico

CR M 3.93 3.72 4.42 3.8

Sig. 0.02 0.02 0.00 0.00

Satisfied and happy??

• Perceptions of the poor differ from their objective reality.

• They rank health, educations, family, work, and work in descending order as their priority life domains and as their most important motivation in life.

• There is a clear hierarchy in life conditions; physical functioning is followed by social functioning (connections).

Satisfied and happy??

• The perception of the poor regarding subjective wellbeing is more complex than the one derived from the literature.

• The poor are satisfied with life but they are less happy.

• We did not find ‘happy poor’.

Are you surprised with the results?

Words for Thought!

•Tourism is pro gROWTH in Ecuador!

•Tourism is pro poor in Ecuador!

Words for Thought •Take advantage of the linkages! •Innovate, remember overshooting!!!

However…..

• Ecuador needs to work with its people, tourism must be understood by everyone.

• Remember…….The poor are satisfied with life but they are less happy.

• Let’s foster the image of the Happy Ecuadorians that we all know exists.

To conclude…… remember two very important things…

Takeaways from the presentation •When dictating economic policy, do like NFL teams • See Tourism as your first draft pick

•Or in the words of Wesley Snipes (passenger 57 movie), in the case of Ecuador…..

• Always bet on Tourism!

Thanks!

Gracias!

ESTC15 CONFERENCE April 30, 2015 Quito, Ecuador

manuel rivera phD