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Chapter 3 The Economics of Tourism and Hospitality

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89 views15 pages

Chapter 3 The Economics of Tourism and Hospitality

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necely babelonia
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THE ECONOMICS OF

TOURISM AND HOSPITALITY


The role of Tourism and Hospitality in
Economic development
Several developing countries have used tourism and hospitality 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 and hospitality also increases at a faster rate.
➢ Third, developing countries need foreign exchange to aid their
economic development.
The economic impact
➢ when travelers outside the destination area spend on goods and
services within the destination, tourism and hospitality acts as an
export industry by bringing in revenues from the outside sources.
➢ Tourist expenditure also increases the level of economic activity in
the host area directly
➢ Many countries have utilized tourism and hospitality as a means to
increase foreign exchange earnings to produce investment necessary
to finance economic growth.
➢ The tourism and hospitality industry’s economic impact on a
destination area can be immense since it provides a sources of income,
employment and foreign exchange
Direct and Secondary Effects
➢ In order to measure the economic impact of tourism and hospitality
on the Destination area, it is important to know the direct and secondary
effects of visitor expenditures on the economy of the area.
➢ Tourist expenditures received as income by business such as hotels,
restaurants, car rental, tour operators, and retail shops serving tourists
have a direct effect on the economy of the host area.
➢ The term “direct” means that the income is received directly. Indirect
or secondary effects mean that the money paid by tourists to business
are, in turn , used to pay for supplies, wages of workers, and other items
used in producing the products or direct services bought by tourists.
Tourism Multiplier
The tourism multiplier effect is the positive impact that tourism has on a local
economy. it happens when tourists spend money in a community, which is
re-spent by the local business and individuals, resulting in more economic
activity. this way it creates a chain reaction, causing additional economic
activity beyond the tourist's initial spending. This can lead to increased
employment, higher incomes, and overall economic growth.
However, the size of the multiplier effect may vary on some factors, including
the local economy, the type of tourism, and the spending by tourists. It is
essential for destinations to manage tourism sustainably, as there can also be
negative effects of tourism such as overcrowding, environmental damage, and
cultural erosion.
The term multiplier is used to describe the total effect, both direct and
secondary, of an external source of income introduced into the economy.

➢ The tourism multiplier or multiplier effect is used to estimate the


direct and secondary effects of tourist expenditures on the economy of a
country
The multiplier effect is illustrated in the following
figure:
➢ A tourism makes an initial expenditure into the destination. This
expenditure is received as income by our local tour operators, handicrafts
store owners, hotelier, and taxi drivers.
In the first round transactions, a hotelier may use some of the money
received to buy some supplies, pay some wages, and retain some profits
➢ The income in the second round may be spent or saved, while the
employee who has received payment for services rendered may spend
some of it on rent and some food, and may put some into savings. The
money spent on supplies I the third round of spending goes for such things
as seed, fertilizer and imported raw materials.
➢ Any income spent on imports has leaked out of the local economy. This
process continues until the additional income generated by a new round of
spending essentially becomes zero.
Undesirable Economic Aspects
of Tourism
Some undesirable economic aspects of tourism and hospitality
are higher prices and economic instability.

➢ Because of an additional demand/ or increased imports,


tourist purchases may result in higher prices in a destination
area. This would mean that local residents would have to pay
more for product and services.
➢ Since pleasure travel is discretionary item, it subject to
changes in prices and income, these fluctuations may result in
economic instability.
How to maximize the Economic
Effect of Tourism and Hospitality

Grow Theories
Proponents of the theory of balance growth suggest that
tourism and hospitality should be viewed as an important
part of a broad based economy, this theory states that
tourism and hospitality need the support of other
industries. Its objective is to integrate tourism and
hospitality with other economic activities.
Economic Strategies

Some economic strategies have been adapted,


such as import substitution, incentives and
foreign exchange.
Import Substitution

It imposes quotas or tariffs on the importation of goods


which can be developed locally, it also grants, or loan to
local industries to encourage the use of local material.
Its objectives to minimize the leakage of money.
Incentives
The wise use of incentives can encourage the influx of capital,
both local and foreign, necessary to develop tourism and
hospitality supply. The most common forms of incentives are:
1. Tax exemption/ reductions on imported machinery, materials
and the like.
2. Reduction of company taxation by means of favorable
depreciation allowances on the investment, or special treatment
in relation to excise taxes, sales taxes, income taxes, turnover
taxes, profit taxes or property taxes
3. Tax holidays
4. Guarantee of stabilization of tax conditions
5. Grants
6. Subsidies
7. Loans at low rate of interest
8. Provision of land freehold at nominal cost or at low rents
9. Free and unrestricted repatriation of all or part of invested
capital profits, dividends, and interest subject to tax
appropriations
10. Guarantees against nationalization or appropriation.

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