Saturday, May 18, 2013

International Transmission Mechanism and Tourism

I've started a new job!  I'm now a Principal Analyst within the Sector Performance team within the Ministry of Business, Innovation and Employment (MBIE).  What a rush!  This has been my third week and I feel like I'm starting to get my feet under the table and hang of the role. 

The Sector Performance team, as its name suggests, has responsibility for analyzing the economic performance of different economic sectors within the economy.  Its focus is sectors - not necessarily industries - for example, we look at the Tourism sector, and the Science and Innovation sector.  Those sector's economic activity span different industry definitions.  We look across industries and at the performance of an economic activity as a whole.

Tourism is one of our foci.  This week, MBIE released this:

International Trade Flows
Take a look at the picture on that webpage and think about what is happening. 

One of the lessons from Open Economy economics is the role trade plays in transmitting economic shocks around the globe.  Back in the days of the Gold Standard, gold underpinned the monetary base of countries.  Changes in the volume of gold held by a country expanded or contracted their banking and monetary base, leading to expansions or contractions in aggregate demand.  The economic prospects of countries were intimately entwined.  Prosperity in one country lead to an increase in import demand from that country.  Gold would move from the prosperous country out to other countries, in the process, reducing the monetary base of the prosperous country, and expanding the monetary base of foreign countries.  As gold flowed according to trade patterns, changes in gold base between different countries "transmitted" economic fortunes between countries.

Moving on neigh on 100 years to now (World War 1 saw countries depart form the Gold Standard - it stuttered and stammered back into life after the war until World War 2 when it was dropped again) international trade flows continue to be one of the main mechanisms for changing economic fortunes between countries.  Upturns and downturns in domestic conditions between different countries continue to play out as increases and decreases in imports demanded from other countries.  One countries imports is another's exports, and another's economic production and source of incomes.  Changes in imports impact and influence economic conditions in other countries.

So ... with that little story under your belt, have another look at the graph on that web page and read it again.  Here it is below:

One of the most notable trends is the long term decline in tourist expenditure from USA and UK tourists.  Since 2001, USA tourist spending in New Zealand has generally declined.  Since 2006, UK tourist spending in New Zealand has approximately halved.   Japanese tourists have decreased their spending.  On the flipside, China's tourists spend, since 2006, has more that doubled.

And the domestic fortunes of the USA, UK, Japan and China?  From here and here:

Until recently Japan's economic growth has been significantly lower than the OECD average.  The UK economic growth bobbed along at about 3 percent between 1999 and 2007.  But since 2007, its economic fortunes have drastically declined and its economic growth rate has been significantly below the OECD average.  And the USA has been on a long run slow economic growth decline since 1999.

China, however, according to the OECD, has mostly experienced double digit economic growth, without growth only slightly falling over the Global Financial Crisis period.

These tourism spend measures turn out to be quite cute thermometer and example of the international economic transmission mechanism.