Poison or Cure? a Study on the Periodic Sponge Effect in Denmark’s Tourism Industry

Abstract

This paper investigates the crucial role of tourism with the periodic sponge effect played in the development of Denmark's industry structure. The existence of the periodic sponge effect between tourism and manufacturing is analysed by proposing an approach to calculate the periodic sponge effect index. This phenomenon describing wane and wax shifting between the industry sector and the service sector is jointly contributed by the natural seasonal variations in the tourism industry and the flexicurity labour market with flexible employment policies in Denmark. To prove that the service sector with periodic sponge effect will not cause the Dutch disease, the relationship between the service sector and GDP in Denmark are studied by adopting a unit root test, Johansen cointegration test and Granger causality test. The global disaster, including the global financial crisis, can be regarded as an outlier in the periodic economic oscillation. The impacts of the financial crisis of 2008 on the alteration of industry structure are revealed. Moreover, during this economic crisis, the de-industrialisation that is a replacement of the manufacturing proportion by tourism is discussed. In terms of the unemployment issue, the depression of manufacturing is the main factor to cause the unemployment problem. Tourism becomes a significant contributor to provide job opportunities. Furthermore, during the COVID-19 pandemic, the current situation of Denmark is discussed.

Keywords: Periodic sponge effect; Financial crisis and COVID-19; Dutch disease; De-industrialization; Unemployment problem; Denmark's tourism industry