Thus, the total effects of tourism on income distribution and poverty reduction depend on more than just the level of spending by tourists on various commodities and services, and who receives the direct employment and incomes from these purchases. The overall impact of tourism also depends on the size of the multiplier effects on output of other sectors, and the distribution of the revenues from increased production to various factors (labor and capital) and ultimately to household groups (poor and non-poor). These multiplier effects are particularly important for spreading the benefits of Panama’s tourism industry to the poor, since many of the poor do not have direct contact with tourists, themselves.

The multiplier effects of tourism revenues (and growth in outputs of other sectors) can be estimated using a semi-input-output (SIO) model of Panama’s economy. In the SIO model, output of some sectors, typically those producing tradable goods, is assumed to be fixed (completely inelastic), and does not expand in response to increases in demand. For these products, increased demand results in increased net imports. For elastically supplied products, however, increased demand is assumed to induce increases in output.<sup>16</sup> The data base for the model is a Social Accounting Matrix (SAM) for Panama for 2003 which describes the input-output structure of production, the distribution of earnings of labor and capital to various household groups, and patterns of spending. In order to enable the simulation of distributional effects of policy, the SAM includes nine productive factors (four types of labor, agricultural land, and four types of capital) along with eight household groups (urban poor and non-poor, rural poor and non-poor for each of four regions Panama City and Canal Zone, Bocas del Toro, Chiriqui and Other Panama) defined using household survey data (Table 5).

**Table 5: Panama: Size and Expenditures of Major Household Groups, 2005**

||**Population**<br>**('000)**|**Population**<br>**(percent)**|**SAM**<br>**Income**<br>**($mn)**|**SAM**<br>**Income**<br>**(percent)**|**SAM**<br>**Income /**<br>**Capita ($)**|
|---|---|---|---|---|---|
|Urban Poor – Panama City|209.9|6.9%|371|3.2%|1,770|
|Urban Non-Poor Panama City|1,076.7|35.2%|7,466|64.7%|6,934|
|Urban Poor – Bocas del Toro|19.1|0.6%|31|0.3%|1,601|
|Urban Non-Poor Bocas del Toro|20.2|0.7%|111|1.0%|5,504|
|Urban Poor – Chriqui|40.9|1.3%|84|0.7%|2,059|
|Urban Non-Poor Chiriqui|148.7|4.9%|749|6.5%|5,039|
|Urban Poor – Other Panama|101.0|3.3%|89|0.8%|878|
|Urban Non-Poor Other Panama|238.4|7.8%|615|5.3%|2,579|
|Rural Poor - Panama City|83.9|2.7%|80|0.7%|953|
|Rural Non-Poor Panama City|79.3|2.6%|235|2.0%|2,966|
|Rural Poor – Bocas del Toro|54.1|1.8%|67|0.6%|1,246|
|Rural Non-Poor Bocas del Toro|11.3|0.4%|42|0.4%|3,709|

16 In the Panama SIO model used here, economic output of the Panama Canal, the Zone Colon, maize, fruits, shellfish, other agricultural exports, mineral, processed milk, other domestic manufacturing, textiles, other export manufacturing and hotels and restaurants sectors is assumed to be fixed (completely inelastic in supply). The remaining sectors (rice, oil seeds, poultry, small livestock, dairy, other domestic agriculture, large livestock, fish, meat, milled grain, electricity/water, construction, trade, transport/communications, private services, and public administration) are assumed to be elastic in supply.

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