Niche or Mass Market?: The Regional Context of Tourism in Palau

Palau is currently at a crossroads. No longer able to rely on the aid and assistance from Washington that had come to play a central role in its economy, Palau, which gained independence in October 1994, is faced with the daunting task of building a self-sustaining national economy in a turbulent and rapidly globalizing world. This tiny Pacific Island country has few natural resources to exploit and is unlikely to duplicate the manufacturing-based, export-led growth strategy of the so-called East Asian model. As in other small island nations, international tourism is currently being touted as the viable industry for the country, and this in turn has precipitated debate over the merits of tourism-based development.

International tourism development is often discussed as if it were akin to selling a commodity in a centralized global exchange--offer the "product" on the "market" and customers will "buy" according to the principles of supply and demand. While such a characterization might be valid at a highly aggregated, abstract level over the long run, the practical reality of national tourism development is one in which, to use the language of neoclassical economics, a variety of "externalities" "distort" the market and structure the opportunities available to countries in very significant ways. This is fundamentally true of small island nations like Palau that depend on air transport as the primary medium for conveying inbound tourists. Under the current international air transport regime, outcomes are as much a product of the highly political process of interstate negotiations as they are of market forces. Tourism flows are also affected by such factors as the degree and character of sovereignty possessed by a state, the idiosyncrasies of diplomatic relations, and the economic policies pursued by states exporting and importing tourists. All of these shape the flow of tourists and tourism development funds across national boundaries. What is commonly referred to as the economics of international tourism is more correctly understood as a political economy of interstate tourism development. In weighing options and developing strategies for tourism development in Palau, it is important to recognize the structural features of the political economy of interstate tourism at work.

This paper analyzes the political economy of tourism development in Palau from a regional and historical perspective. It begins with a general discussion of the larger context of the development of international tourism in the Asia-Pacific region. As detailed in that section, in recent decades Asia-Pacific tourism has in large part been the story of the expansion of Japanese overseas tourism, with its distinctive set of modalities and geopolitics, followed more recently by the emergence, on a much smaller scale, of the overseas tourism of the East Asian newly industrializing economies. The next section outlines the regional context of tourism development in Palau and reviews how tourism and tourism development have unfolded in Micronesia since the late 1960s. I argue that the distinctive contours of political status in the region interacted with the development pattern of Japanese overseas tourism to produce a distinctive geography of tourism and tourism development in the region surrounding Palau. This regional context frames the next section, which focuses on Palau's experience with tourism. The concluding section outlines some implications.

Patterns of Overseas Tourism in Asia and the Pacific

Japan is currently the dominant source of tourists visiting Micronesia, although in the last decade or so there has been significant growth in the number of tourists from South Korea and Taiwan (table 1). The dominance of Japanese tourism and the recent emergence of Taiwanese and South Korean overseas tourism are not unique to the Micronesian region, but reflect a general trend in the evolution of the global tourism industry over the last three decades. The rapid growth in the number of Japanese overseas travelers as that country attained "economic superpower" status has been one of the most significant global trends in international tourism. Historically...