New project examines the effect of COVID-19 on the tourism industry in Scotland

The 11th of March 2021 marked one year since the World Health Organisation declared that COVID-19 could be characterised as the first coronavirus pandemic. The last year has witnessed the largest public health crises of recent history and an unprecedented disruption to the global economy. We are able to announce the start of a new project funded by the UKRI in which we will work with partners in VisitScotland to quantify the economic impact of COVID-19 scenarios on tourism in Scotland.

Countries across the world have implemented policies to reduce social contact and control the spread of the disease, as a response to the COVID outbreak and a response to limit transmission. These include travel restrictions, closure of indoor and other premises, including food and drinks, hospitality and cultural activities. In April 2020 the World Tourism Organisation (TWO) declare that “for the first time in history, 100% of worldwide destinations have introduced travel restrictions in response to the pandemic”. Niewiadomski (2020) puts it more succinctly: “as a result, tourism as we knew it just a few months ago has ceased to exist.” The January 2021 WTO barometer notes that at a global level, international tourism fell by 74% in 2020.

Economic role of tourism

Tourism plays a critical economic role across many countries and regions. Across the EU for instance, some 13 million jobs are supported by tourism, while for many countries – particularly for a number of smaller and lower income countries – tourism is a critical economic sector. Indeed, as Hall (2010, p. 402) notes: “Many of the crisis events that affect tourism have been occurring for millennia. Yet what has changed is the dramatic growth in the scale of tourism and other human movement, to the extent that the developed world is often described as hypermobile.”

The tourism industry is also a vital part of the Scottish economy. In 2019 it supported 5% of all Scottish economic activity and more than 218,000 jobs (Scottish Government, 2020).  The sector is also important across many areas of Scotland: in 21 of Scotland’s 32 local authorities tourism is the Scottish Government’s “growth sector” with the largest employment.

How has the COVID pandemic affected tourism?

Latest survey evidence analysed in an earlier FAI blog suggested that the tourism and hospitality sector has been affected by an “an unprecedented simultaneous demand and supply shock to this part of the economy.”

While the demand side impacts on tourism during the pandemic are obvious, the supply-side did not escape. Firms’ productivity and profitability fell as capacity restrictions were imposed, or businesses were shut completely under the restrictions in force. Unlike for other sectors, home working was possible for only one in ten workers in tourist-facing sectors. Crucially, changes in the scale and type of tourism does not impact only on tourist-facing activities, such as travel, accommodation, cultural and recreational activities, but also all those industries that are highly interconnected to tourism activities via supply chains such as such as agriculture, farming and fishing, and retail.

What will we do in this project?

This project will take an economy-wide perspective and adopt a multi sectoral, dynamic economic model of the Scottish economy developed over the years by the Fraser of Allander Institute, where the research team is based. Versions of these models – developed in the FAI – are currently used by the devolved Governments of Northern Ireland and Scotland as part of a suite of tools for policy analysis.

With a series of simulations– developed in collaboration within the project with VisitScotland – the approach can identify those industries that will lose/gain from these changes in terms of jobs, investment and output, plus the scale of the aggregate impact on economic activity. The results from the model will be regionalised to sub-regions of Scotland using information about the composition of economic activities using Business Register and Employment Survey (BRES) data.

The Computable General Equilibrium (CGE) economic modelling framework is a state-of-art economic simulation model widely adopted in both the impact analysis of demand and supply side shocks to key tourism economic activities (Meng and Siriwardana, 2017) offers an extensive review)  and in the analysis of the impact of pandemics (see for instance Pham et al, 2021; Smith et al., 2009, 2011).

The model is based on Input Output (IO) national accounts which capture the interconnectedness between industries in the economy, key characteristics of their supply chain including jobs, investment and imports, and of the distribution of demand for their output to tourists, households, government and export. The model is able to compare the state of the economy before and after an economic shock (or multiple shocks) and to compare the economic consequences of different counter-factual simulations.

Summary

Using a CGE modelling framework in this project allows us to isolate the economic effects of COVID-19 that are ultimately solely attributable to its impact on tourism (including through policy responses).

One of the main advantages of using a CGE framework is the ability to analyse demand- and supply-side shocks, both separately and jointly.  From the demand side, we shall model the impact of both the reduction in international and business tourism and the shifts in demand patterns to different industries as compared to the pre-COVID situation. From the supply side, we will capture the impact that measures aimed at limiting the spread of the virus (such as social distancing or early closing times for restaurants) have on costs of production and output.

We look forward to developing quantitative scenarios for the recovery of the tourism industry in Scotland and helping to inform discussions about the future of this critical sector in the aftermath of the Covid-19 pandemic.

More details can be found on the project’s website here which will provide a window into the project as well as provide updates on new tourism statistics.

Project team: Grant Allan, Gioele Figus and Kevin Connolly

The authors acknowledge funding from UKRI through the “UKRI Ideas to Address COVID-19” call (Grant reference: ES/W001195/1) and the input from Chris Greenwood and Raymond Macintyre (VisitScotland).

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