As acknowledged by all other countries, the measurement of the contribution of tourism to the

economy is difficult because of the unique nature of this industry. While other industries can be
easily defined for official statistical purposes by simply measuring the commodities which they
produce andtheir size and perlormance can be measured through a direct survey, this cannot
apply to the case ofthe tourism industry.

The main difficulty in defining the tourism industry and measuring its economic impact lies in
the fact that it caters to a wide variety of consumers, a very amorphous market, who happen to be
tourists.

Because most firms in the industry do not have a clear and reliable basis in establishing what
proportion of their customers are tourists, the direct measurement of the industry is practically
impossible. While sampling through surveys can be resorted to and the result obtained therefrom
can be used as basis for proportionate distribution and interpolation of levels and patterns of
expenditures, this procedure will likely produce unreliable results with a large margin of error.

These limitations were recognized from the start when the series of studies on tourism industry
were conducted. The NSCB tried its best to fit in the Input-Output Table. Somehow, despite best
efforts and good intentions, there are inherent flaws and deficiencies in the information system
which characterize practically every sector in the economy. Part of this stems from the
recognition that a very large underground economic sector exists in the Philippines, the business
transactions of which are difficult to capture and measure.

Moreover, even in areas that are covered by the formal market, data are still difficult to generate
because of lax and weak enforcement of laws and other rules and regulations, faced with this
dilemma, the authorities charged with preparing the National Accounts do
not have much choice expect to devise methods that inevitably have built-in flaws.
One glaring example is the measurement of tourism receipts. The Central Bank data on the
invisible receipts of the Balance of Payments statement placed tourism receipts at only P9.0
billion in contrast to the P29.74 billion using the DOT component method. We can only
conclude that the wide discrepancy in the two data bases reflects the sizeable portion of leakages
that go to the blackmarket.

This same problem bugs the successful measurement of the manpower export programme in
which banking institutions capture barely less than one-third of actual foreign exchange
remittances. Clearly, this points to the necessity of revising some financial rules and regulations
to allow the establishment of more government authorized money changers. Corollarily,
authorities should review the incentive\ scheme for such money changers to make their
operations more effective. In the final analysis, however, the stability of the foreign exchange
rate of the peso will be the most influential factor that will affect the preferences of tourists to
patronize the services either of the legitimate money changers or the
informal market.

Tourism receipts have grown dramatically from only P4.6 billion in 1980 or 1.9 percent of GDP
to P29.9 billion in 1988 or 3.7 percent of GDP. Between 1987 to 1988, tourism growth rate was
26.6 percent. While growth is a positive development, several aspects concerning it must be
looked into.

First, the issue of how this growth is related to equity should be considered. National statistics
indicating growth may not be that meaningful if the benefits do not accrue more equitably to the
people,or to the various regions of the country. Future tourism growth objectives, therefore,
should also generate sectoral and regional growth and income. Moreover, sectoral tourism data
should be generated in order to show more clearly tourism's contribution to growth and equity
for a balanced sectoral distribution of its benefits.

Another issue is that of net foreign exchange earnings from tourism receipts. While inward
tourism receipts totalled P29.9 billion, outward tourism expenditures (travel expenses by Filipino
tourists going abroad) in the same year amounted to P26.3 billion. Likewise, based on the
tourism imports multiplier of 0.146, only 85.4 centavos out of every peso of tourism receipts
may be considered as net foreign exchange earnings. Clearly, this calls for restraint on outbound
tourism expenses given the scarce foreign exchange resources of the country. Similarly, efforts
should be exerted to lessen the import content of tourism thereby increasing net foreign exchange
benefits.

Local products should be promoted more aggressively to the foreign tourists. Product
development efforts should be intensified to improve the quality of domestic souvenir items and
thus make them more saleable to the foreign tourists.

In making an economic analysis of tourism, both benefits and costs should ideally be considered.
This study has focused more on the benefit side because of lack of reliable data in quantifying
the social costs of tourism. Let it be understood that while tourism may generate income and
employment, it inevitably also has some negative effects especially on the environment and the
moral values of society.

If such factors could be given due weight and quantified accordingly, then the economic benefits
that we have computed in this study would change drastically. Clearly, further research should be
done along this line in order to generate data and develop a methodology for incorporating also
the social costs of tourism, as is usually done in determining the economic rates of return of
projects.

The P1.85 billion indirect tax contribution of tourism represents only 3.2 percent of total
government indirect tax revenues. The tax multiplier effect of tourism should be enhanced by
encouraging greater expenditures by tourists on these sectors. Another alternative to maximize
revenues would be for theauthorities to consider increasing the tax rates associated with these
products and services. However,the private sector feels that the present tax measures
implemented by the government is on the upperlimit. Therefore, a more feasible alternative to
increase revenues would be for the authorities to insure the implementation of efficient and
effective tax collection schemes.

Tourism's low forward linkage but high backward linkage indicates the direction that may be
pursued in terms of investment, especially by the private sector. Tourism should induce
investment opportunities in those sectors that utilize their products. The industries with which
tourism has high backward linkages particularly should be closely examined and efforts should
be directed towards increasing the output and consumption in said industries.

Many of the support services for tourism are still provided free of charge or at nominal cost by
government authorities, such as in communication and other promotional activities. This results
in not reflecting the full cost of such services thereby tending to overstate the economic benefits
of the sector. It is about time that this practice be reviewed and modified to come up with a more
realistic estimate of tourism benefits. Moreover, the authorities should pursue privatization
programmes for tourism morevigorously.

The transfer to the private sector of many hotels and other tourism related business
establishments that were either foreclosed or sequestered should be apriority. Once privatized,
the costs of providing such services would be more reflective of true market conditions. It
follows that new hotels and other tourist facilities that are being put up by private business
establishments would adopt the same principle. Nevertheless, this privatization scheme should be
reinforced by promoting a strong partnership between the government and the local private
sector through institutionalized consultations and the implementation of synchronized
promotional and development projects for the industry.

1. Introduction
The 2000 Input-Output (I-O) Accounts of the Philippines is the ninth (9th) of a series of inter-
industry studies of the Philippine economy since the construction of the first benchmark I-O
table in 1961. The first two series, 1961 and 1965 I-O accounts, were prepared and published
independently by the National Economic Council (the forerunner of the National Economic
Development Authority, NEDA) and the Bureau of Census and Statistics (now the National
Statistics Office, NSO). The next three tables (1969, 1974 and 1979) were collaborative works
of these two offices. With the creation of the National Statistical Coordination Board (NSCB),
the succeeding series, 1985, 1988 and 1994, were produced as a joint undertaking of the NSCB
and NSO.
The Input Output Accounts provide dis-aggregative measures of the economic structure of the
country, which are not shown in the national accounts. The development of the I-O tables and
techniques has advanced economic analysis, providing planners and policy makers with a more
detailed view of economic structures towards a more effective and specific translation of
economic development plans and programs.
The Philippines has managed to construct the 2000 I-O Tables despite the limited resources,
financial and manpower, allotted to statistical development. As in the earlier I-O Tables, the
2000 I-O Accounts focuses on the performance of the different sectors of the economy and their
inter-relationships. The 2000 I-O also features some of the 1993 SNA recommendations like the
new output concept for banks and insurance, enhanced valuation and accounting processes, etc.
The 2000 Input-Output covers the 240 by 240 industries and commodities. This is presented in
transaction tables of technical coefficients and inverse matrices. As in the past I-O’s, the
current I-O Accounts was made possible through the collaborative effort of the National
Statistical Coordination Board and the National Statistics Office.
2. CONCEPTUAL FRAMEWORK
Input-output analysis was developed as an analytical framework to describe the inter
relationships among the various producers in an economy. It presents the inter relationships
between the industries in an economy in terms of the production and the uses of their products
and the imported products in a table format. In the table, the economy is viewed with each
industry listed along the column as a consuming sector and along the rows as a supplying sector.
Thus, the I-O table sets out in a systematic manner these transactions which facilitiates economic
analyis.
The Input-Output Accounts framework assumes that the inputs used in producing a product are
related to the industry output by a linear and fixed production coefficient. Under this
assumption, I-O relations are transformed into the technical relationships and are shown in the I-
O coefficients table as column entries. Thus, each column represents a technique of production.
2.1. Basic Framework
To facilitate input output analysis, three main tables are produced: the transactions table, the
table of technical coefficient, and, the table of interdependence coefficient (inverse matrix).
The Transactions Table
The Transactions Table, which is the basic table of the I-O system, records all production flows
within the economy during the specified year/period. To prepare the Transactions Table, the
economy is divided into sectors based on the national industry classification, the Philippine
Standard Industrial Classification (PSIC). The output of each industry is distributed along a row
of the table while the corresponding column records the inputs of the sector. Entries in a row
show how the output of a certain sector is disposed, either as intermediate sales to other
industries or as final deliveries of goods and services for (a) private consumption expenditure,
(b) government expenditure. (c) investments, and, (d) exports. Entries in a column, on the other
hand, reflect the value of inputs utilized to produce the output of the sector. These are comprised
of the intermediate inputs which include the materials and services purchased from other
industries; and the primary inputs which are payments to the factors of production in the form of
(a) salaries and wages paid to workers, (b) depreciation allowance (or consumption of capital
allowance) for the use of capital, (c) net indirect taxes paid to government, and, (d) operating
surplus paid to entrepreneurs.
The Table of Technical Coefficient
The Technical Coefficients Table or direct requirements matrix presents the unit cost structure of
production in an economy. This describes the coefficient value of intermediate inputs and
primary inputs required in the production of one unit of output of the industry. The technical
coefficients are derived by dividing each element in the intermediate transactions matrix by the
total input of each sector as shown in the column total.
The Inverse Matrix
The Inverse Matrix or Leontief Matrix shows the production required, directly and indirectly, per
peso of delivery to final demand. The elements in a column correspond not only to the direct
requirements but also to the indirect sectoral output requirements needed to meet a unit increase
in the final demand for that industry’s output. To illustrate, the effect of an increase in demand
for a certain product does not end with its required direct intermediate inputs. It generates a long
chain of interaction in the production processes since each of the products used as inputs needs to
be produced, and will, in turn, require various inputs. One cycle of input requirements needs
another cycle of inputs, which in turn requires another cycle. The sum of all these chained
reactions is reflected in the inverse matrix.
For I-O analysis, the Leontief matrix is very important because it provides the link between
production and the final demand. This can be used to calculate the required output levels of a
postulated set of final demands. The matrix is calculated as the inverse of the technology matrix
(I - A), where A is an input coefficient and I is the identity matrix.
2.2. Basic Input-Output Assumptions
Basically two assumptions are considered in constructing the I-O table, namely: homogeneity
and proportionality. By homogeneity, it is assumed that (a) each industry produces a single
output (i.e. all the products of the industry are either perfect substitutes for one another or are
produced in fixed proportions); (b) each industry has a single input structure (i.e. one which does
not vary in response to changes in product mix); and, (c) there is no substitution between the
products of different industries. 1/ In effect, the same product or close substitutes could not be
contained in two different industries.
On the other hand, proportionality requires that in any productive process all inputs are used in
strictly fixed proportions. Any increase or decrease in inputs will result to a proportional
increase or decrease in the level of output. Hence, a process that is labor intensive cannot be
substituted by the capital-intensive alternative. Regardless of the extent of capacity expansion or
reduction, the same fixed ratio is maintained.
3. FEATURES OF THE 2000 INPUT-OUTPUT ACCOUNTS OF THE PHILIPPINES
3.1. Basic Structure of the I-O Tables
The 2000 Input-Output accounts features the symmetrical I-O transactions table as well as the
other analytical tables such as the table of technical coefficients and table of interdependence
coefficients (inverse matrix). The symmetric table has the same number of rows and columns
and uses the same classification in both rows and columns. In compiling I-O 2000, the industries
are assumed to take on an industry technology structure, i.e., it is assumed that all products
produced by an industry have the same input structure. To the extent possible, secondary
products were transferred to the principal activity where they belong.
Imports are entered in the transactions table as a negative item in the final demand section. As
such, all imports are treated as competitive imports. Competitive imports treat all imported
goods and services as competitive with domestically produced commodities. Each cell entry in
the table consists of locally produced and imported commodity
Although tourism has become a fast-growing industry, pertinent economic analyses have been
somewhat limited, possibly because it is not a single independent industry but rather comprises
businesses from different sectors (Tooman, 1997).
In general, economic impact analysis estimates the changes in economic activity within a region
resulting from an action.
In response to this, the study intends to investigate the economic impact of tourism in the country
and provide a more comprehensive view on the total effects of tourism expenditure in the
economy. This also identifies the sectors that have relationship to the tourism industry and
evaluates the impacts on tourism subsectors.
Input-output (I-O) analysis describes the economic transaction within a region. This transaction
represents a ‘snap shot’ and creates a mathematical representation of the economic activity
occurring within the region. I-O analysis uses an economic model that traces the flow of goods
and services, income, and employment among related sectors of the economy. It provides a
means for examining relationships within an economy among and between different sectors.
 In tourism, tourist expenditure has repercussive effects throughout the economy. Aside
from the direct effects, tourist expenditure also has indirect effects in other industry aside from
those who directly receive tourism income. Using the I-O analysis, the impact of change in the
final domestic demand generated by tourism on the economy was examined. The input-output
multipliers provide the detailed picture on the impact of the tourism expenditure on output,
income and employment throughout the locality.
Based on Figure 5.1, visitor arrivals in the Philippines show an increasing trend from the
period of 2003-2007. It was lowest in the 2001 which fall by 1.3 from 2000. As the trend
predicts, it was in 2007 when the Philippines experienced the highest influx of visitors at the
volume of 3,091,993 visitors. The visitor influx increased at an average rate of 8.7 from 2006
which is the highest growth rate experienced from 1998-2007.

Consistent with the trend exhibited by the tourism arrivals data, the data on visitor receipts
shows an increasing trend from 2003 to 2007. Generally from 1998 to 2003, there is a steady
decline in visitor receipts. However, the country experienced a significant increased in 2004 with
a growth rate of 30.7%. Highest increased in tourist receipts was experienced in 2006 followed
by 2007 with a rate of 55% and 41%, respectively. Data shows that 2007 has the highest tourist
receipts of USD 4885.37 million.

. As the data shows, there is a wide gap in the length of stay of foreign visitors and overseas
Filipinos. Overseas Filipinos prefer to stay longer in the country as compared to foreign visitors
wherein their average length of stay is almost double that of the foreigners.
Comparison of the average daily expenditure of foreign visitors and overseas Filipinos suggests that
foreign visitors spend more than the overseas Filipinos.

On average, data suggest that the major expenditure incurred by the visitors is for accommodation with a
percent share of 34.11 from 1999 to 2007.

Another major expenditure is allocated for the food and beverages which has an average share of
27.49 percent. Shopping is also another major expenditure with an average share of 18.29 percent. Other
major expenditures are on entertainment/recreation, local transport, and guided tour.

Figure 5.11 shows that the total tourist expenditure decline from 1999 to 2003 but it managed to
increase at a low rate from 2003 to 2005. Fortunately, a large boost in total tourist expenditure happened
in 2006 and 2007.

Based on the PTSA definition, the tourism consumption expenditure has seventeen (17)
corresponding industries in the input-output table. This is indicated in Table 5.13.
The tourism consumption expenditure is divided into major items namely accommodation,
food and beverages, transportation, guided tour, entertainment and recreation, and miscellaneous
tourism services.

As shown, most of the inputs required by the tourism sector can be categorized as food products.
Specifically, twenty-five percent (25 %) of the inputs required come from other food
manufactures, followed by the meat, beverage and fishery at 9%, 5% and 3% respectively.
Moreover other food products such as dairy, vegetables, fruits, coconut and oils, and poultry
products also comprise the major inputs purchase by the tourism sector.
Other purchases of the sector are the commercial services (2.14%), fuel, electricity and water
(1.75%), trade (1.63%), chemical products (1.25%) and financial services (0.9%). Aside from
these, a certain proportion of inputs also comes from textile, paper and wood, metal, appliances
and electrical, and, petroleum industry.

Aside from being a purchaser of products from other sectors, tourism sectors also produces
and sells products to other sectors. A certain proportion of the output is sold to media and other
services at both 4.68%. It is followed by financial and commercial services at 3.04% and 2.59 %
respectively. Other purchaser of tourism products includes state management and defense,
education, health and social work, textile, chemical products, real estate and construction
industries. Tourism also sold to sectors such as beverage, other food manufactures, other
manufactured goods, science and technology, transport services, appliances and electrical,
garments and footwear, tanneries and leather industries, and even to hotel and tourism industry
itself.

Although, the transaction matrix is for the year 2000, it is still useful to identify which sector is
greatly affected by the initial tourism payment. As shown, a large share of tourism payments
goes to the hotel and tourism sectors itself, followed by the food manufacture sector. Notably, for
these two sectors, large proportion impact is attributed to the intermediate inputs.
Agriculture is the third affected sector followed by government services which provides the
highest proportion of primary inputs, trade and transportation sector. Other sectors, which also
benefitted from the turn-over of tourism payments includes construction and real estate, finance,
mining, telecommunication, commercial services, manufacturing, and, fuel, electricity and water.

Impact:

The results suggest that tourist expenditure from 2000 to 2007 has a largest impact on output
with an average impact of 5325.92 million USD per year. It is followed by income/compensation
impact with an average of 1485.07 million USD per year and tax impact of 288.24 million USD.
Meanwhile, export is slightly higher than import at 90.03 million compared to 32.98 million
impacts on imports.

Output impact shows a decreasing trend from 2000 to 2003. It increased from 2003 to 2004 and
boosted on 2005 to 2007. Income, on the other hand, has a more steady movement wherein there
is a low rate of decline from 2000 to 2003 and similarly low rate of increase from 2004 to 2007.
Moreover, import and export depict an almost constant trend from 1999 to 2007.

The impact of tourist expenditure in terms of output from 2000 to 2007 is shown in Table 5.20
and table 5.25. The total impact on tourism output is approximately 5325.92 million USD per
year from 2000 to 2007.As figure 5.16 suggests, the largest impact on output of approximately
2456.23 million USD on the average, is on the miscellaneous tourism services which includes
shopping and retail trade and others. It also has significant impact on accommodation sector.
Both impacts on these sectors follow the trend which decreases until 2003 and increases until
2007. Next affected sector is the entertainment and recreation with an average impact of 586.37.
It is followed by food and beverages, guided tour and transportation sector which have relatively
more stable trends.
 Income impact, in this analysis, refers to the amount of income generated in terms of wages
due to tourism demand. Based on the results provided in table 5.21 and table 5.26, three sector
groups are the most affected namely the accommodation, entertainment and recreation, and
miscellaneous tourism services with an average impact of 490.86, 367.35, and 426.69 million
USD, respectively.
For these three sectors, the income dramatically increased from 2005 to 2007. The other three
sectors, on the other hand, remains more steady for the period of 2000 to 2007. The total income
impact on this tourism sectors is 1485.07 million USD, on the average, from 2000 to 2007.

For the period of 2000 to 2007, it has an average total impact of 288.24million USD per year.
As table 5.22 and 5.27, the largest tax-paying sector due to tourism is the entertainment and
recreation which poses a wide gap compared to others with an average tax impact of 183.34
million USD. Next is accommodation sector with average impact of 54.22 million USD. It is
followed by miscellaneous tourism services, food and beverages and guided. The least affected
sector in terms of tax is the transportation sector which has an almost constant trend from 2000
to 2007.

Tourism also contributed to the imports of tourism sectors in order to meet the demand of the
tourists. Based on the results in table 5.23 and table 5.28, miscellaneous and food and beverages
sector has the largest import due to tourism with an average of 16.57 and 11.27 million USD per
year from 2000 to 2007. It is followed by the transportation sector which has a relatively
fluctuating trend, with an average 3.02 million USD worth of imports.

The two which has the least import due to tourism are the entertainment or recreation at 1.85
million USD and the guided tour at 0.26 million USD per year. For the period of 2000 to 2007,
the average impact on import per year on these sectors totaled to 32.98 million USD.

On the average, the total export impact contributed by tourism is 90.03 million USD per year,
as depicted in table 5.24 and table 5.29. Miscellaneous tourism services has the largest export
impact and experienced a large increased from 2005 to 2007. Food and beverages and
accommodation sector also have a large export impact with an average of 18.85 and 15.36
million USD per year. Meanwhile, transportation, guided tour, and entertainment and recreation
provide a small proportion of impact on export and almost constant trend from 2000 to 2007.