# **1. Introduction**

The tourism sector has grown rapidly in Latin American countries over the last decade and has become an important source of foreign exchange and an impetus for overall economic growth. Tourist arrivals rose by about 68 percent worldwide over the 1995– 2007 period and by about 50 percent in Latin American countries (Fayissa et al. 2009). The tourism sector makes an increasingly large contribution to the overall economy and foreign exchange earnings in the region, and it has rapidly grown in Panama in the last decade. The international arrivals in Panama have grown from around1.3 million visitors in 2006 to 1.7 million in 2010.<sup>2</sup> Given the sector’s growing importance, the Panamanian Tourism Authority ( _Autoridad de Turismo de Panamá,_ ATP) carried out a series of surveys between 2006 and 2008 to better understand the direct and indirect economic impacts of tourism and develop pilot satellite accounts. According to the 2006 data on national and international tourism and tourists’ expenditures, including tourists in transit that never leave the airport, international tourist arrivals in Panama reached 2.4 million—a number equivalent to 70 percent of the country’s population. The expenditures by foreign tourists during this period totaled around $960 million, equivalent to 6 percent of Panama’s 2006 GDP. Of the total of 2.4 million visitors, about half of the visits are direct transit<sup>3</sup> and a quarter is for recreation; the former account for one-third of total expenditures by foreign tourists and the latter for over 40 percent. Panama is also becoming a popular destination for retirees from North America and Europe—not reflected in these statistics on tourism arrivals, which contributes to the real estate boom in the metropolitan area of Panama City, Bocas del Toro and Chiriqui.

Recent studies show that growth of the tourism sector has contributed to overall economic growth and development in Latin American countries. A cross-country econometric study of the determinants of economic growth in 17 Latin American countries over the 1995–2004 period found that a 10 percent increase in the spending of international tourists leads to a 0.4 percent increase in GDP per capita (Fayissa et al. 2009: 13). Another study examined the growth performance of Nicaragua and found that of the three sectors, including agriculture, manufacture, and tourism, the latter offered the largest potential to generate foreign exchange earnings, increases in job creation, increases in economic expansion and impacts on income distribution (Vanegas and Croes 2007). The coffee and manufacturing sectors have also played an important role in the country’s overall growth, but the impact of the tourism sector was found to be higher. The findings of this study have also suggested that a five percent increase in tourism receipts leads to a 3.1 percent decrease in poverty in Nicaragua. Thus, the tourism sector can become a powerful driver of pro-poor growth in the Latin America countries in general and in Panama specifically because of this sector’s strong potential to create jobs

> 2 Panamanian Tourism Authority (2010). The Statistical Bulletin. Panama City.

> 3 Passengers in direct transit are visitors that spend less than 10 hours in the airport and proceed to other destinations. Using this definition, in 2005, 48 percent of tourists were in direct transit, and a further 13 percent were defined as (indirect) transit passengers. An additional 24 percent were recreation tourists, 13 percent business visitors, and 2 percent—non-business visitors for purposes other than transit or recreation.

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