The Economics of Tourism: Microperspective To Tourism and Hospitality

MICROPERSPECTIVE TO TOURISM
AND HOSPITALITY
WEEK 3
MODULE 3
Learning Outcomes:
At the end of the lesson, you

will be able to:
1. Explain the role of tourism in

economic development;
2.Analyze the economic impact of
tourism on a destination areas.
3.Describe the undesirable effects
of the economic aspects of
tourism;
THE ECONOMICS 4.Identify strategies which can
maximize the economic effect of
OF TOURISM tourism.
CONTENT
THE ROLE OF TOURISM IN ECONOMIC DEVELOPMENT
Several developing countries have used tourism development as an

alternative to help economic growth. The reasons for this are; First, there is a
continuous demand for international travel in developed countries. Second, as
income in developed countries increases, the demand for tourism also increases at
a faster rate. Third, developing countries need foreign exchange to aid their
economic development.
Tourism is an invisible export, which differs from international trade in many
ways.
1. In tourism, the consumer collects the product from the exporting country,
thereby eliminating the freight costs for the exporter, except in cases in
which the airline used are those of tourist receiving country.
2. The demand for pleasure travel is largely dependent on non-economic
factors, such as local disturbances, political unrest, and changes in the
fashion ability of resorts/countries created mostly by media coverage.
3. By using specific fiscal measures, the exporting or tourist receiving
country can manipulate exchange rates so that those for tourists are
higher or lower (normally the latter is implemented in order to attract
large number of tourists) than those in other foreign trade markets.
4. Tourism is multifaceted industry that directly affects several sectors in the
economy, such as hotels, shops, restaurants, local transport forms,
entertainment establishments, handicrafts producers, and indirectly
affects many others, such s equipment manufacturers and utilities.
5. Tourism brings many more non-monetary benefits and costs than other
export industries, such as social cultural and environmental benefits and
costs
ECONOMIC IMPACT
When travelers outside the destination area spend on goods and services
within the destination, tourism acts as an export industry by bringing in revenues
from outside sources. Tourist’s expenditures also increase the level of economic
activity in the host area directly. Many countries have utilized tourism as a means to
increase foreign exchange earnings to produce investment necessary to finance
economic growth.
Tourism’s economic impact on a destination area can be immense since it
provides a source of income, employment, and foreign exchange.
DIRECT AND SECONDARY EFFECTS
In order to measure the economic impact of tourism on the destination area,

it is important to know the direct and secondary effects of visitors expenditure on the
economy of the area. The term direct means that the income is received directly.
Indirect or secondary effect means that the money paid by the tourists to
businesses are in turn to pay for supplies, wages of workers, and other items used
in producing the products or direct services brought by tourists.
TOURISM MULTIPLIER
The term multiplier is used to describe the total effect, both direct and
secondary, of an external source of income introduced into the economy. Tourism
multiplier or multiplier effect is used to estimate the direct and secondary effects of
tourists expenditures on the economy of a country. The multiplier effect is illustrated
in this figure.
Local tour
Operator Spend
Increased
Personal Seed
Income Save
Handicrafts Fertilizer Raw Imports Purchase material (leakage) Tourist of
supplies
Wages ... Hotelier
Rent
... Wages Food
Services
(taxi etc.) Savings
Leakage is the value of goods and services that must be imported to service the
needs of tourism. To estimate the total economic impact on an area, imports must be
subtracted from the income generated visitors.
UNDESIRABLE ECONOMIC ASPECTS OF TOURISM
Some undesirable economic aspects of tourism are higher prices and economic
instability. Because of additional demand and/ or increased imports, tourist purchases
may result in higher prices in a destination area. This would mean that local residents,
would also have to pay more for products and services.
HOW TO MAXIMIZE THE ECONOMIC EFFECT OF TOURISM
A. Growth Theories
-some economic growth theories have been proposed to maximize the economic
effect of tourism within a destination area. These are the theory of balanced growth and
the theory of unbalanced growth.
Proponents of the theory of balanced growth suggest that tourism should be
viewed as an important part of a broad-based economy. This theory stresses that
tourism needs the support of other industries. To obtain maximum economic benefit,
tourism goods and services should be locally produced.
Theory of unbalanced growth emphasize the need to expand demand. As a
demand increased through the vigorous development of tourism, other industries will
move to provide products and services locally.
B. ECONOMIC STRATEGIES
-the key to maximizing the economic effects of tourism is to maximize the amount
of revenue and jobs developed within the region. To attain this, objective, some
economic strategies have been adopted, such as import substitution, incentives, and
foreign exchange.
C. IMPORT SUBSTITUTION
-it imposes quotas or tariffs on the importation of goods which can be developed
locally.
D. INCENTIVES
-the wise use of incentives can encourage the influx of capital, both local and
foreign, necessary to develop tourism supply. The most common forms of incentives are:
1. tax exemptions/reductions on imported machinery, materials, and the like;
2. reduction in company taxation by means of favorable depreciation allowances
on investment, or special treatment in relation to excise taxes, sales taxes, incomes
taxes, turnover taxes, profit taxes, or property taxes;
3. tax holidays (limited period);
4. guarantee of stabilization of tax conditions (for up to 20 years);
5. grants (for up to 30% of total capital costs), etc.
Before implementing an incentives strategy , a destination should :
1. examine the performance of the schemes of other countries in light of their
resources and development of objectives;
2. research the actual needs of investors;
3. design codes of investment concessions related to specific development
objectives with precise requirements of investors; and
4. establish targets of achievements and periodically monitor and assess the
level of realization of such targets.
E. FOREIGN EXCHANGE
-many countries have placed restrictions on spending in order to maximize
foreign exchange earnings. They have limited the amount of their own currency that
tourists can bring in and take out of the destination to ensure that foreign currency is
used to pay bills in the host region.
REFERENCES
Cruz, R. G. (2016). Tourism Impacts and Sustainability. Rex Book Store. Zenaida Lansangan-Cruz,
P. (2013). Principles of Tourism 1. Rex Bookstore,Inc.

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MICROPERSPECTIVE TO TOURISM

At the end of the lesson, you

1. Explain the role of tourism in

THE ROLE OF TOURISM IN ECONOMIC DEVELOPMENT

Several developing countries have used tourism development as an

In order to measure the economic impact of tourism on the destination area,

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