Tourism Shocks, Income Distribution and Poverty: A Social Accounting Matrix Approach for Kenya

This paper applies structural path analysis and the Foster-Greer-Thorbecke (FGT) poverty index to a Social Accounting Matrix (SAM) from the year 2003 for Kenya in order to study the distributive effects of exogenous shocks on tourism spending. The SAM was first extended to incorporate two dummy sectors, namely domestic and foreign tourism, and then used to analyse inter-sector growth linkages and economic multipliers of tourism demand shock. The analysis has been carried out under the assumption of a complete excess capacity in production and under the assumption of supply constraint within the country. The results reveal that foreign tourism has weak forward and backward linkages, whereas domestic tourism is backward-oriented. Tourism production multipliers are significant, indicating that the output of tourism contributes significantly to the economy in terms of growth of output in other sectors, value-added and employment. Tourism expansion benefits all household classes, but most of the gain accrues from ‘skilled’ and ‘semi-skilled’ labour. The transport sector and the hotel industry are found to be instrumental in transmitting the shock from tourism to the changes in household income. FGT poverty indices decline in the wake of the positive tourism shock, suggesting that tourism has the potential to reduce poverty. The usefulness of the analysis for tourism planning is demonstrated.