Current Issues in Economy and Management

The advantages of natural resource exports on the economy, as well as some disadvantages such as the Dutch example, have been the subject of theoretical and empirical research from time to time. The negative effects of the natural resource wealth on the economy were first investigated by Meade and Russell (1957) for the Australian economy. According to this study, the excessive international demand for raw material has had a positive effect on the balance of payments in Australia in the first stage, but in the long run this effect has turned negative. Because, the increase in the export of raw materials raised first the export prices, then the wages and industrial costs. After a certain period, these changes created a substitution effect between export and import.

Although there were many empirical studies on the subject, the theoretical background of the Dutch disease could only develop in the 1980s. Theoretically, Dutch disease was first investigated by Corden and Neary (1982) and Corden (1984). They, in their study, proposed the Basic or Core Model of Dutch disease. They divided the economy into three different sectors. Through the rapidly developing sector, they investigated the development of non-tradable goods sector by using general equilibrium analysis. They also found that the development of the non-tradable goods sector caused a contraction in the tradable goods sector. In particular, this contraction was observed in the ←9 | 10→industrial sector. Thus, they identified the Dutch disease with the concept of deindustrialization.

Copeland (1991) has argued that the development of the tourism sector in the long term may lead to deindustrialization and welfare loss. Copeland (1991) explored the effects of the growth in tourism sector on the welfare, output, and factor prices of host country by using general equilibrium and international trade models. In his study, Copeland (1991) claimed that the development in the tourism sector could lead the country host to tourism or to the Dutch disease by means of production factor movement and expenditure effects. Furthermore, Chao et al. (2006) expressed that the increase in the price of non-tradable goods will negatively affect the accumulation of capital in the short and medium run and reduce the welfare of the country in the long run. Some of the advantages that the tourism sector has achieved in the short term help governments temporarily solve some problems. In such a case, the income from the tourism sector is similar to the income from the export of natural resources. The rapid growth in the tourism sector or natural resources in the short term can be seen to be desirable, but this also raises the necessity of reallocation of production resource. On the other hand, in order to gain more income, workers move to the service sectors by leaving their jobs in the traditional and industrial sectors, which may ←10 | 11→lead to a decrease in the production of these sectors by affecting the redistribution of resources, industrial and agricultural sectors, and the Dutch disease or beach disease according to Holzner (2011).

The tourism sector is considered as an important source of foreign exchange inflows in Turkey. Especially in the last 20 years, very important progresses have been taken in this sector. The effects of this sector on macroeconomic indicators have been the subject of interest in the context of Dutch disease. There are almost no studies analyzing the Turkish tourism sector within the framework of the Dutch disease concept. The purpose of the present study is to econometrically determine whether the tourism sector in Turkey causes Dutch disease, whether there exists a relationship between the tourism sector and the industrial sector, and how this situation affects Turkish economy.

2 Causes of Dutch Disease

As mentioned earlier, the starting point of the Dutch disease is the availability of new natural gas resources in the Netherlands. After the theoretical framework of the Dutch disease was developed by Corden and Neary (1982), causes of the Dutch disease which were formed by the influence of other factors attracted the attention of many researchers. After Buiter and Purvis (1983), many studies have examined the Dutch disease through the petroleum sector. For this reason, more studies have been done especially for Persian Gulf and OPEC member countries. In addition, the studies of Beck et al. (2007) for the Russian economy, Egert and Leonard (2008) for Kazakhstan, for Saudi Arabia Looney (1990), for Iranian economy Karimzade et al. (2009) and Esfahani and Pesaran (2009), Peter et al. (2014) for Australian natural resources, Papyrakis and Raveh (2014) for Canada, Wei Ge and Kinnucan (2016) for the Mongolian mining sector, and Mustapha and Masih (2016) for Nigeria are among the studies examining the Dutch disease.

However, over time, this subject was not limited to natural resources and energy factors. In some countries, it has been found that other advantageous products or factors cause Dutch disease. For example, in some countries, the export of agricultural products, which is advantageous in whole economy, caused the Dutch disease. More productive production of agricultural products in agricultural countries provided an export advantage to the country. This led to a significant amount of foreign exchange inflow to the country. The high amount of revenue created an impact on the spending and resource movement by influencing the employees in the other sectors (especially the industrial sector). All these factors led to Dutch disease. For example, in Colombia, the ←11 | 12→1910–1950 period of the bananas and the late 1970s, coffee exports have led to strong findings for the Dutch disease. Another sector that causes Dutch disease is the tourism sector, which is also the subject of this study. For the first time in literature, the concept of Dutch disease in the tourism sector has been developed by Copeland (1991). Following Copeland’s research, the studies of Balaguer and Cantavella-Jorda (2000) for Spain; Nowak and Sahli (2007) and Kenell (2008) for small island economies and Thailand, respectively; Kropp and Brussels (2009) for Greece; Holzner (2010) for 134 countries; Mieiro et al. (2012) for Macau; Gylfason and Zoega (2014) for Icelandic economy; Inchausti-Sintes (2015) for Spain; and Ghalia and Fidrmuc (2015) for 133 countries are the main studies investigating Dutch disease among them.

Another factor leading to Dutch disease is foreign aid. In this factor, it has been argued that the poor countries are caught by the Dutch disease through the help of international or other aid organizations. Two important studies in this area are the World Bank’s 2004 research for Ethiopia and Gupta and Yang (2005) for the African countries. In addition to the above, money transfer and direct foreign investments may cause Dutch disease. This issue has been the subject of research in more developing countries. Foreign currency inflowing to the country through money transfers creates significant effects on the country’s economy, such as foreign exchange inflow through natural resources. Some of the studies investigating Dutch disease in this issue are Beja (2010) for the top 20 remittance countries, Saab and Ayoub (2010) for Egypt, Bayangos (2012) for Jordan and Syria, Bayangos (2012) for the Philippines, and Makhlouf and Mughal (2013) for Pakistan. An example of a study on foreign direct investment is the study by Botta et al. (2015) for Colombia. In addition, there are studies in the empirical literature indicating that high interest rates may cause Dutch disease. Finally, the phenomenon of international migration is one of the factors that can cause Dutch disease, by creating inter-sectoral resource movement and spending effects in the countries. The study conducted by Beine et al. (2015) for Canada is an example of this factor.

3 Tourism Sector and Dutch Disease

The tourism sector plays a major role in reducing the current account deficit by providing significant amounts of foreign exchange inflows to the economy, especially in times of economic turbulences. Moreover, this sector has a great role in the fight against possible unemployment due to the labor-intensive nature of the tourism sector (Akın et al., 2012). Although there are some problems related to the use of environmental resources, tourism sector in developing countries is ←12 | 13→seen as an indispensable locomotive sector of economic growth. Tourism sector is considered as an early sector in terms of foreign exchange gains, efficient use of scarce resources, and increase in employment and diversity (Sinclair, 1998). Tourism is an important export factor in 83% of developing countries. At the same time, the tourism sector is the main export factor in one-third of this 83%. In the less developed 49 countries, the tourism sector is an important growth factor. The added value created by the tourism sector increased by 45% in these countries in the period of 1990–2000 and by approximately 20% in developing countries (WTO, 2002). Therefore, tourism sector is an important income source for the less developed and developing countries, especially in the short term.

According to the findings of some studies, the countries’ short run growth policy based on tourism has led to higher economic performance compared to other substitutable policies. However, some economists have disagreed with the results of these studies. For example, Copeland (1991) and Chao et al. (2006) argued that the growth in the tourism sector leads to a decrease in the accumulation of capital in the industry and manufacturing sector, although it reduces the consumption of non-tradable goods or improves the terms of trade. On the other hand, tourism sector is not a sector that provides or supports technological development. Solow (1956), Lucas (1988), Romer (1990), and Sachs and McArthur (2002) emphasized high technology as the most important factors that provide stable and sustainable growth in the long run. For this reason, tourism-oriented countries are more vulnerable and fragile to Dutch disease. The following four criticisms have been addressed to the growth advocates based on tourism sector, particularly in terms of sustainable development or growth (Inchausti-Sintes, 2015).