A NOTE ON THE TOURISM DEMONSTRATION EFFECT

by

Jerome L. McElroyAssociate Professor of EconomicsSaint Mary's College

with the assistance of

Mary C. ParentiDepartment of Business/EconomicsSaint Mary's College

Paper prepared for the IX Annual Caribbean Studies AssociationMeeting in St. Kitts, West Indies, May 30 - June 2, 1984.

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insular decision-makers were persuaded by a sparse but optimistic literature

touting the supposed benefits of visitor activity to establish the region's com-

parative advantage in the context pf burgeoning international demand (

Peters, 1969; Zinder, 1969). A two-pronged policy of tax concessions/

infrastructure provision to lure capital and aggressive promotion with an em-

phasis on volume to lure tourists became part of an overall strategy of export

diversification to anchor the traditional staple economies on more durable

income-elastic engines of growth (Demas, 1965).

By the 1970s, the "more is better" or "Shotgun" marketing approach

began to falter. The combination of continued North American affluence, a

favorable external environment, attractive investment concessions, and suc-

cessful marketing had produced a proliferation of new regional suppliers. As

a result, competition intensified, and tourism strategy began increasingly to

stress maximizing the domestic impact of visitor activity as well as retaining

market share. Some serious thought was devoted to rationalizing the industry's

structure, reducing income leakages, improving facility management, and so on

(Brittan, 1977; Bryden, 1975; Carrington and Blake, 1971; CADEC, 1972; Jones,

1976; Lundberg, 1974; Birla and McIntosh, 1974; Pollard, 1976).

However, the new emphasis on plugging income leakages versus expand-

ing the dollar inflow was frought with a variety of internal and external re-

sistances that continue to constrain policy-makers' flexibility. These include:

(1) the difficulty of restructuring an industry largely controlled by foreign

technology and tastes; (2) the perennial pressure on incumbent decision-makers

to demonstrate their success by quoting rising visitor volume statistics for

mass approval; (3) three US induced recessions which generally paralyzed any

innovative policy because of a kind of policy impotence characteristic of many

export-led systems. According to this syndrome, during prosperity when resources

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are available for restructuring, there is no motivation for change because bus-

iness as usual (mass marketing) is perceived as successful. On the other hand,

during downturns when the motivation for change is high, the capacity to alter

policy is gone and the bromides and practices of the past are pushed even more

vigorously (McElroy, 1978a: 9-10).

However, the challenges of the 1980s are providing fresh opportunities

for change. These challenges include: (1) experienced dissatisfaction with the

"more is better" approach as manifested by the distortions deriving from severe

annual seasonal swings of overcrowding and underutilized capacity; (2) the in-

creased sensitivity of insular economies to cyclical fluctuations of inflation

and recession resulting from growing reliance on tourism; (3) the expanded re-

gional and international climate of competition exacerbated by slower worldwide

economic growth and increased instability; (4) a persistent and highly critical

academic literature on tourism's negative environmental and cultural, etc. dis-

locations. In such a climate, the region's long-standing ambivalence toward

tourism must be faced more squarely, and the trade-offs will have to be examined

more seriously. Long-term tourism viability will require renewed focus on the

industry's linkage potential with domestic sectors (Belisle, 1983), and perhaps

a more targeted marketing strategy (Miller, 1984).

Socio-economic Dysfunctions

There is a long-standing list of alleged economic and noneconomic

trade-offs associated with tourism development (Forster, 1964; Butler, 1974).

Though in many cases these spillovers are only partially documented, they re-

quire some special mention because of their significance for contemporary policy.

One of the most chronic dysfunction repeatedly mentioned is the in-

tractable migration of land and labor factors out of agriculture and other tradi-

tional pursuits (Bryden, 1973:47, 1974:154). In some smaller islands, the pace

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islands' "genius of place." Natural coastal and beach areas have been displaced

by hotel and marina expansion. Mountain faces and pristine landscapes have been

etched with condominium clusters and road networks. Just as large developments

have alienated vast land areas from traditional uses and even modified climatic

features (McEachern and Towle, 1974), so also particularly sensitive ecosystems

like swamps and mangroves have been irreversibly disturbed (Villamil, 1976:3)

and lobster beds and fish populations have deteriorated (Hopkins, 1978:178).

Some of the most serious criticisms of unbridled development and

acquiescent government policy have involved the many dimensions of cultural

pollution affecting insular life (Wenkham, 1975:75). Although the precise inter-

actions displacing traditional values are often unclear and only casually docu-

mented, particularly in small tourist-dominated societies their presence is

pervasive. Some manifestations include: the commercialization that overtakes

the measured pace of island life (CADEC, 1972:29); the demoralizing intrusions

of prostitution and drugs (Taylor, 1975:35; Jud and Krause, 1976), and the sub-

jective and objective contours of racism and hostility infesting all layers of

tourism behavior (Lundberg, 1974; Taylor, 1976; Villamil, 1976); and as an alien

fantasy life or metropolitan playground diverced from island reality (Matthews,

1977).

Tourism has also been implicated in rising crime rates in the region

(de Albuquerque, 1984). Although few empirical studies exist, comparative

evidence suggests Caribbean crime rates rank above most of the developing world

(UN, 1977:71-73). A largely untested hypothesis suggests that mass-type tourism

causes rising tourist densities which produce animosity among small-island resi-

dents because rising expectations are only partially realized. Crime rates rise

as visitors become both visible symbols of societal ills and relatively easy and

lucrative targets for victimization (Gray, 1974; Judd, 1975). Since the primary

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sources of this and the other dysfunctioned outlined above are seen to be large-

scale developments, volume merchandising, and uncontrolled growth, the suggested

remedies include smaller-scale indigenous facilities, maximizing local product/

service content, and more selective marketing strategies (Linton, 1976; Hiller,

1974).

The Demonstration Effect

One externality that encapsulates many of the structural weaknesses

of Caribbean tourism is the international demonstration effect, i.e. the gen-

erally rapid assimilation of affluent, North American tastes and consumption

patterns. The importance of this phenomenon is due primarily to its pervasive •

infiltration across all levels of final and intermediate spending and its lirk-

age with and reinforcement by tourism's other socio-economic dusfunctions. From

its early formulation by Nurkse (1953:63ff), the central importance of the de-

monstration effect has been emphasized in general discussions of economic de-

velopment and in particular reference to tourism acticities in LDCs.

The Caribbean and related literature are no exception. Although the

beneficial potentials of resident-visitor interaction are sometimes mentioned--

the stimulus to work effort and socio-cultural understanding and enrichment--

stress is placed on the negative spillovers. These include the disequilibrium

between the fast rate of consumer preference shifts versus the slow pace of

productivity change (Villamil, 1976), the inappropriate scale of imitative me-

tropolitan lifestyles given the narrow insular resource base (Perez, 1975:31;

Bryden, 1973:214; Harrigan, 1972), the damage to community saving and capital

formation (Demas, 1975), and to traditional small-scale entrepreneurs and cot-

tage manufactures (Sadler and Archer, 1974), the pernicious impacts of the adu-

lation of all things foreign on domestic culture, creativity, and self-identity

(Naipaul, 1969:210; Williams, 1969:501-02), and, as some argue, internal po-

litical instability (Taylor, 1975:39; Jafari, 1974:236).

Yet despite the region's preoccupation with changing consumption

norms and the alleged pervasive nature of the phenomenon, there is on the one

hand little formalized theory on the precise mechanism of taste transmission,

nor on the other hand any truly systematic empirical validation of the demon-

stration hypothesis.

On the one hand, there is no clear uniformity regarding the cause-

effect relationship. Emphasis on different but related facets of the complex

interaction vary. Some writers stress the ready availability of expensive

goods fostered by tourism (Hopkins, 1978:177). Others focus on the intensity

of visitor-resident contact as the precipitant mechanism, and/or the lasting

local impression caused by excessive lifestyle disparrities (DeKadt, 1979:67).

Likewise, some emphasize the impact of persistent media intrusion (Thomas,

1974:251-52), while others stress the rapid income changes concomitant with

shifting from traditional to tourism employment (Archer, 1974:7-8). Some

underline the diffusion sequence from the affluent and mobile elA.Le middle-

class affiliated with the touirsm industry outward to the white-collar and

blue-collar circles beyond (Jafari, 1974:240).

However, there is some consensus on the broad contours of the funda-

mental processes involved. First, the demonstration effect seems to be more

prevalent throughout smaller microstates because their structures are highly

pervious to media penetration. Second, the effect is especially reinforced

by tourism: (1) because of the peculiar nature of the product, i.e. on-site

North American/European consumption; (2) because of the clo.2 association of

native service workers with expatriate managerial personnel; and (3) because

the many service activities spawned by tourism produce a great variety of new

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income and entrepreneurial opportunities to sustain expensive, nontraditional

taste patterns. Third, all formulations assume at least implicitly some form

of Engel's behavior as demonstration evidence. 1

On the other hand, some authors downplay the specific significance

of touirsm demonstration on consumption patterns in favor of long-run forces

associated with modernization. This competing hypothesis emphasizes three

nontourist influences that operate, however indirectly, at the macrosocial

level: the long-period dimensions of industrialization (including fertility

changes) associated with diversification (Taylor, 1964; Daubon and Robinson,

1975); (2) persistent metropolitant emigration and return (Caldwell et. al.,

1980); and (3) the population substitution of high-income expatriate immigrants

for low-income native emigrants (Villamil, 1977). These writers imply that

tourism demonstration is only one (and perhaps relatively minor) aspect of the

overall process involving major consumption shifts over time.

Methodology and Data

These two competing hypotheses, the lack of clarity concerning the

transmission mechanism, and the paucity of household expenditure data in the

region are all partly responsible for the dearth of empirical work on the

demonstration effect. As a provisional first step to remedy this shortcoming,

this note attempts to indirectly test the hypothesis at a very aggregative

level of analysis and bypass any direct examination of the precise nature of

the interaction. Specifically, it seeks to analyze the simple relationship

between tourism intensity and island consumption patterns across a small cross-

section of Caribbean economies. The simple hypothesis guiding the analysis is

that the more pervasive the visitor industry the closer insular consumption

patterns approximate North American or Western behavior. In addition, simple

regression results of the demonstration model are compared with results from a

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significant. In the second case, however, modernization as measured by per

capita income "explained" two thirds of the variation in the food ratio. More-

over, the regression coefficient was statistically significant with the ap-

propriate negative sign. 3

The scatter plots in Fig . i reveal these same differences in the

two experiments. The bunching of the data evident at the top and the bottom

ends of the array suggests not only the shortcomings of the limited data set,

but also may hint at a kind of threshold phenomenon as consumption patterns

shift irregularly over time for societies in transition. If such a nonlinear

pattern could be established, it might partly explain the relatively poor

showing of countries intermediate in tourism intensity as well as the gem:ally

weak findings from the linear regression methods employed above. 4

Such results sugges that the same set of nontourist modernizing for-

ces—industrialisation, metropolitan emigration and immigration, close metro-

politan political affiliation--may also explain why the USVI (as opposed to the

Bahamas) ratios for food, shelter, and other expenses are almost identical

to Hawaiian patterns (see Table 1). Moreover, the relative absence of such in-

fluences in the case of Barbados and St. Vincent and St. Kitts may in-

dicate why countries which approximate the intermediate range on the index of

tourism influence record consumption ratios (primarily food) so extremely dis-

similar to US behavior to be characterized as almost polar cases in this very

limited sample.

In summary, despite the highly aggregative nature of the analysis,

the sparse data base, and measurement and conceptual problems, these findings

indicate tentatively that tourism may influence consumption behavior since the

observed spending configurations of high-tourist Caribbean economies are strik-

12

ingly dissimilar from their low-tourist counterparts precisely in their closer

proximity to North American standards. However, from this limited sample. the

tourism relationship is clearly less pronounced than the more encompassing in-

fluences associated with modernization, and by implication, urbanization-indus-

trialisation and metropolitan exposure, as some authors have suggested. Thus,

although tourism may have a role to play in determining North American-type

taste shifts in the region, judgement should be reserved on: (1) the impor-

tance attached to that role vis-a-vis other modernizing influences; (2) how

tourism actually "demonstrates" these taste change effects; and on (3) whether

tourism's transmission is different from or a more or less intense variant of

nontourist modernizing forces.

Clarification of these central issues will require certainly a much

more comprehensive sample of countries as well as a more uniform data set of

expenditure ratios. This would permit not only subsample experiments to control

somewhat for some nontourist influences, but also possibly some time-series

analyses where longer period consumption/tourist data are available. Clarifica-

tion may also require more specific expenditure ratios to more accurately cap-

ture the peculiar kinds of spending associated with the specific presence of

tourism. In addition, "urban" and "rural" ratios could be developed to re-

flect intra-country differences in tourism intensity. Until these unanswered

questions can be directly addressed by more sophisticated studies, this pro-

visional note suggests that the repeated claims of tourism's demonstration im-

pact be viewed with some caution.

15

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TABLE 1: SELECTED CHARACTERISTICS AND SPENDING RATIOS FOR SELECTED CARIBBEAN COUNTRIES 1

Variable Hawaii Bahamas USVI Antigua Barbados St.Vincent St.Kitts Jamaica Puerto Rico Belize

TouristExpend/GNP .87 .62 .46 .31 .18 .15 .07 .06 .05

GNP/POP 10,820 2,780 5,580 1,070 2,400 490 780 1,240 2,970 1,030

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Food 26.0 34.3 25.3 46.5 58.7 55.2 59.6 53.3 36.9 55.4

Shelter 21.0 13.0 24.9 28.92 9.1 11.1 6.6 8.9 8.0 7.7

Transport 14.5 9.1 11.7 10.0 5.5 4.9 11.8 3.2

Apparel 8.1 10.1 5.4 7.4 6.9 6.9 5.8 8.2 11.8 9.8

Utilities 3.2 3.1 6.5 6.4 5.2 5.1 3.6 4.5

Furnit. 5.3 9.0 4.3 8.92

5.4 6.14 3.2 10.3 6.1

Other 21.9 21.5 21.8 7.2 10.9 15.03 6.751 16.5 17.6 13.3

'Sources:

2lncludes3lncludes4lncludes5lncludes

For tourist expenditure/GNP and GNP/POP, see Lowenthal (1982:126-27).For spending ratios, see McElroy and Caines, Consumer Expenditure Patterns: A Survey of St. Thomas, 1975

and 1976, (Gainesville: University of Florida Presses, 1980):51-52; Household Income and Expendi-ture Statistics: 1960-72, (Geneva: ILO):173-75; and UN, Current Economic Position and Prospect Reports: No. 2504-JM:102; No. 2439-CRB:171; No. 2432-CRB:157; No. 2506-BAR:149; No. 2438-CBR:233.

utilities and household itemstransportationmiscellaneous itemsalcoholic beverages and transport

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