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Measuring tourism in Texas.

Texans worry about the impact of a freer economy on sectors such as manufacturing, agriculture, transportation, and financial services. But little has been said about the effect of economic liberalization on the travel industry, that sector accounting for both pleasure and business trips. Free trade will bring not only an increased movement of goods but also a greater number of Mexican business people coming to Texas to explore business opportunities. As the number of travelers increases, so will the need for travel services. Claiming the largest share of the border with Mexico, Texas is in a unique position to capture a significant portion of this growing demand for hotels, restaurants, retail goods, rental cars, and entertainment.

How can travel-related businesses take advantage of this unique position? A better understanding of past travel trends in Texas could help the travel industry anticipate future trends in a more open market. In an effort to find effective ways to monitor travel in the state and evaluate how free trade is affecting it, we have developed over the past year a basic index that tracks historical trends in travel activity. Such an index will provide businesspeople involved in travel-related activities with the means to respond rapidly to problems and find timely solutions.

In our preparatory research, we discovered that there is no single method for constructing indexes. One of the oldest travel indices, developed in the 1950s for Williamsburg, Virginia, is a simple arithmetic index of hotel/motel receipts, retail sales, and tourist ticket sales. In the 1970s, another was developed for Arizona, and more recently, travel barometers were constructed for North Carolina (1983) and Mobile, Alabama (1987). However, because these indices use a restricted number of variables, give equal weights for all the variables, or rely on subjective information from "experts" to assign the weights, they were not useful for our purposes. The statistical method we selected offers several advantages over earlier indices. Called the principal components method, it assigns different weights to each variable. The index can be forecasted to anticipate changes in travel-related activities when data are not yet available, and it can be used for hypothesis testing (e.g., to test the countercyclical qualities attributed to tourism). It can also be a tool to convince federal, state, and local governments to allocate resources for obtaining better travel statistics.

After establishing our method, our second task in constructing an index involved selecting the data, deciding on the type of variables to include and how to treat them. (Some may need to be deseasonalized while others may require adjustment for inflation.) To circumvent the problem posed by passenger data that includes passengers in transit, we used a quarterly sample of airplane passengers whose final destination was Texas. Employment data for travel-related sectors such as hotels, motels, and passenger car rental businesses were also included in the index. Business activities were represented by employment data on services and manufacturing. Finally, we incorporated the peso exchange rate because of the importance of Mexican tourists to Texas and the relevance of this variable in determining the costs of travel for a Mexican businessperson or tourist coming to Texas.

Preliminary quarterly estimates in the index indicate that the years 1986 and 1987 were very good for travel activity in the state. The Texas Sesquicentennial celebration proved a boon to the Texas travel industry, making it one of the few growth sectors in the state in 1986. In that year, 48,600 people, on average, were employed in the airline transportation industry, up from the 45,800 average of 1985. The number of people employed in eating and drinking establishments averaged 400,300 in 1986, up from 388,800 in 1985-by far, the largest increase for any category of employment in the state. In contrast, the year 1988 presented a different picture: travel activity did not grow and even showed a small decrease in the last quarter. We do not have estimates for 1989 and 1990, but if travel activity decreased or remained static during this period, a logical next step would be to determine the factors most responsible for the lack of growth.

To complete this index we need to: (1) expand the set of variables, (2) disaggregate employment data, (3) update data to 1990, and (4) build indices for the years previous to 1985 in order to be able to forecast travel activity. Finally, we need to develop indices for regions and metropolitan areas because travel is not a homogeneous sector across all areas. In this attempt we will depend on the participation and support of government and private entities involved with this sector. Once a complete index is developed, we can observe progressive changes in Texas travel as free trade becomes stronger.
COPYRIGHT 1991 University of Texas at Austin, Bureau of Business Research
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Publication:Texas Business Review
Date:Oct 1, 1991
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