Input-output multipliers in a small open economy. An application to tourism.

The small open economy model implies short-run supply constraints in traded and partially traded sectors — which could significantly reduce sectoral multiplier values. As an illustration, this paper estimates income multipliers for export tourism in Ireland under different assumptions about the tradedness of supplying sectors. The limited usefulness of such multipliers to long-run policy making is also highlighted. 'he weaknesses of tourism multiplier estimates based on input-output A data are well documented (see Bryden and Faber, 1971;Bryden, 1973; Diamond, 1976 and 1977; and Archer, 1977). The purpose of this paper is to extend this discussion to incorporate a consideration of the implications of the small open economy model for these estimates. Section II considers the issue of supply constraints in estimating multi­ pliers and illustrates by means of a simple example the implications of the small open economy model in this respect. Section III contains various estimates of the income multiplier for export tourism in Ireland under different assumptions concerning the tradedness of, and, therefore, supply constraints in, a few sectors. Section IV concludes the paper.