Forecasting Regional Investment in the Hotel Industry: An Input-Output Approach

The tourism industry is characterized by severe shifts in demand that play havoc with forecasting future investment. Within the tourism industry, the need for large-scale initial capital investment in the hotel sector, make the latter particularly vulnerable to the vagaries of the tourism market. Given an up-turn in demand, the hotel industry cannot always respond immediately and its' response is likely to vary across regions. There is therefore a need for a forecasting tool that can estimate the magnitude of the demand 'push' that can stimulate the hotel sector into new investment and the extent to which this response is regionally differentiated. Using a multi-regional input output (MRIO) augmented by an investment matrix, this paper demonstrates the capabilities of such an approach. Regional hotel industry outputs for four classes of hotels in the six regions of Israel are estimated. Expected regional rates of return to hotel investment are compared with actual (reported) rates of return and the discrepancy between the two explained. Regional hotel (per room) capacity coefficients are also estimated and regional responses to an increase in demand of 100,000 extra tourists are calculated in terms of additional hotel rooms and capital investment.