Forecasting Regional Investment in the Hotel Industry: An Input-Output Approach
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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 re-spond 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 re-gionally differentiated. Using a multi-regional input output (MRIO) augmented by an in-vestment matrix, this paper demonstrates the capabilities of such an approach. Regional ho-tel industry outputs for four classes of hotels in the six regions of Israel are estimated. Ex-pected 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) capaci-ty 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.