International travel restrictions and the location of consumption spending

With COVID19 all countries are going through the same crisis but not all countries will experience the crisis in the same way.  International travel is likely to be curtailed for a significant period of time.  Some countries are more dependent on tourism than others.

One way to look at this is to compare consumption expenditure by residents of a country outside of that country to spending by non-residents in that country.  Here are 2018 figures for the then EU28.  These figures exclude expenditure linked to business or commercial activity.

For Household Final Consumption Expenditure (HFCE), the “national concept” is that amount undertaken by residents of the country (both at home and abroad) while the “domestic concept” is that amount undertaken within the jurisdiction (both by residents and non-residents).  For measures like GDP it is the “national concept” of HFCE that is included. 

This means that consumption spending abroad by Irish residents is counted in Irish GDP (though it does not increase GDP as there is obviously an offsetting import included for the goods and services consumed, which of course then results in an export for the country where the spending happened).  The purpose is to make the Consumption figure in GDP better reflect the actual use of goods and services by a country’s residents.  In the circular flow framework, this is a leakage from the country where the people live and an injection to the country where the spending occurs.

Anyway, for Ireland, we can see that residents spent about €6 billion abroad while non-residents spent about €4.5 billion here, such that non-residents spending here was 76% of Irish residents spending abroad.  As shown by the second column from the left by which the countries are ranked, this ratio is one of the lowest in the EU – only the UK, Belgium, Germany and Romania are lower.

This means that a lot of the spending that non-residents would typically do in Ireland could be replaced by the spending that Irish residents would typically spend abroad – if and when businesses premises are opened and people have the confidence to go and visit them.

At the top end of the table we can see countries where the spending by non-residents is multiple times greater than the spending their residents do abroad, notably Greece, Croatia, Portugal, Malta and Spain.  The final column gives the spending of non-residents as a share of Gross National Income.  And again, the countries that are most dependent on spending by non-residents are those at the top.

It can be seen there is what could be considered a north-south or even a core-periphery split to the table.  The countries at the top (most dependent on spending by non-residents) include Portugal, Italy, Greece and Spain while towards the bottom are The Netherlands, Sweden, Finland, Germany and Belgium.

Of the bottom five countries, the spending by non-residents in Ireland is the largest as a share of Gross National Income (with modified GNI, or GNI* used in the case of Ireland).  While we are in a position to replace much of the spending by non-residents by the spending we would typically do abroad this is only in an aggregate sense. 

But just like the restrictions on international travel will have unequal impacts on countries, the location and composition of any additional spending in Ireland that might typically happen abroad will be significantly different than that which it might replace which will result in winners and losers.

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