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Tourism's Economic Impact

CHAPTER

Learning Objectives

Know economic generators and impact of tourism.

Perceive the economic importance of tourism in various regions of the world.

Understand multipliers.

Know about balance of payments.

Comprehend elasticity and inelasticity.

Know about tourism satellite accounts.

Tourism’s economic impact

Terms

International tourist arrivals (ITA)

One person visiting the same country several times during the year is counted each time as a new arrival.

Likewise, the same person visiting several countries during the same trip is counted each time as a new arrival.

International tourist receipts (ITR)

Expenditure of international inbound visitors including their payments to national carriers for international transport.

They also include any other payments or payments afterwards made for goods and services received in the destination country

Tourism’s economic impact

Terms

Emerging (mature) destinations

conceptualized as a geopolitical area where tourism has just been accepted as a major socio-economic development tool and where the community has expressed willingness to leverage the tourism potentials to enhance their socio-economic well- being.

Examples of destinations that have entered the maturity stage are United Kingdom (UK), United States of America (USA), South Africa (SA), Kenya, etc. A good example of an emerging tourism destination is Nigeria. Nigeria has just begun taking tourism seriously.

Emerging (mature) economies

nations with social or business activity in the process of rapid growth, industrialization and foreign investment

The seven largest emerging and developing are the BRIC countries (Brazil, Russia, India and China), as well as MIKT (Mexico, Indonesia, South-Korea and Turkey).

Tourism’s economic impact

Tourism key to development, prosperity and well-being

An ever increasing number of destinations have opened up and invested in tourism, turning tourism into a key driver of socio-economic progress through export revenues, the creation of jobs and enterprises, and infrastructure development.

Over the past six decades, tourism experienced continued expansion and diversification, becoming one of the largest and fastest-growing economic sectors in the world. Many new destinations have emerged apart from the traditional favorites of Europe and North America.

Despite occasional shocks, international tourist arrivals have shown virtually uninterrupted growth – from 25 million in 1950, to 278 million in 1980, 528 million in 1995, and 1,035 million in 2012

Tourism’s economic impact

Long-term outlook

International tourist arrivals worldwide will increase by 3.3% a year from 2010 to 2030 to reach 1.8 billion by 2030 according to UNWTO long term forecast Tourism Towards 2030.

Between 2010 and 2030, arrivals in emerging destinations (+4.4% a year) are expected to increase at double the pace of that in advanced economies (+2.2% a year).

The market share of emerging economies increased from 30% in 1980 to 47% in 2012, and is expected to reach 57% by 2030, equivalent to over one billion international tourist arrivals.

Tourism in the world-key figures

9% of GDP-direct, indirect, & induced impact

1 in 11 jobs

$1.3 trillion in exports

6% of the worlds exports

From 25 million int’l tourists 1950 to

1,035 million tourist in 2012

5-6 billion domestic tourists

1.8 billion int’l tourists forecast for 2030

Tourism, why it matters

ITA and ITR

ITa

Inbound tourism by mode of transport, 2012

ITA

ITr

Top spenders in international tourism

Tourism, why it matters

International tourism in 2012 - key trends and outlook

ITA-International tourist arrivals (overnight visitors) worldwide exceeded the 1 billion mark for the first time ever in 2012, with 1,035 million tourists crossing borders, up from 995 million in 2011.

Asia and the Pacific recorded the strongest growth with a 7% increase in arrivals, followed by Africa (+6%) and the Americas (+5%).

International tourist arrivals in Europe, the most visited region in the world, were up by 3%. The Middle East (-5%) has not yet succeeded in returning to growth.

With a 4% increase in real terms, the growth in international tourism receipts matched the growth in arrivals.

ITR-International tourism receipts reached US$ 1,075 billion worldwide in 2012, up from US$ 1,042 billion in 2011.

Forecasts prepared by UNWTO in January 2013 point to growth of 3% to 4% in international tourist arrivals for 2013, only slightly below 2012’s level and in line with UNWTO’s long-term forecast.

By UNWTO region, prospects for 2013 are stronger for Asia and the Pacific, followed by Africa.

UNWTO Tourism Towards 2030: Actual trend and forecast 1950-2030

Optimization

Economics is concerned with the attainment of an optimum return from the use of scare resources.

Tourism is viewed from a variety of perspectives:

Psychological benefit, local tourism businesses, community governments seeking economic benefits for the community and its citizens

In economic terms, optimization occurs when agents seek to allocate the limited supply of tourism resources (both physical and financial) in the best possible way to meet the demands of tourists.

Three Major Goals of Tourism

Maximize psychological experience for tourists

Maximize profits for firms providing goods and services to tourists

Maximize direct (primary) and indirect (secondary) impacts of tourist expenditures on a community or region

These goals are often compatible but in certain situations can be incompatible.

Constraints Faced in Tourism Goal Attainment

Demand

Supply of attractive resources

Technical and environmental constraints

Time constraints

Indivisibilities

Legal constraints

Self-imposed constraints

Lack of knowledge

Limits on supportive resources

Economic Multipliers

The circular flow of income and expenditure.

Assume now that there is an investment into this closed system of $100,000 on a new leisure complex.

Firms will hire factors of production to the value of £100,000 and therefore

national income, measured at point A, will rise by $100,000.

Economic Multipliers

However, the effects of the investment do not stop there. The workers who earned money from building the complex will spend their money in shops and bars and so on. Thus, the incomes of shop and bar owners will rise. They in turn will spend their incomes.

This is a “closed” system

Economic Multipliers

The key leakages or withdrawals from the economy are savings, ports and taxes.

Injections also occur in the form of investment, exports, and government spending.

Tourism affect economic multipliers both directly and indirectly

Economic Multipliers

Direct Effect

Result from visitors spending money in tourist enterprises and providing a living for the owners and managers and creating jobs for employees

Indirect Effect

The multiplier impact: visitor spending circulates and recirculates

Employment Multiplier

Income Multiplier

Indicators of direct, indirect and total contribution of tourism to the economy of Australia

'The economic contribution of tourism has two elements: direct and

indirect. The direct contribution is solely concerned with the immediate

effect of expenditure made by visitors. For example, when a tourist uses

a taxi service, the direct output effect includes only the service of the taxi

driver and the direct employment effect includes the proportion of the

driver's employment that is spent driving tourists.

The taxi driver, however, buys fuel from a petrol station, machinery parts

from a garage, meals while on duty from a food outlet and so on. Petrol

stations, garages and food outlets all hire staff and produce output to

serve the taxi drivers, who in turn serve customers, some of whom are

tourists. The food outlet in turn engages food manufacturers, electricity

companies, delivery services and many other industries to provide the

necessary inputs required to prepare the snacks it sells. Similarly, many

industries are involved in supplying the necessary inputs to the petrol

stations and the garages. The chain effects on output and jobs started

by the initial taxi service demand of the tourist comprise what is termed

tourism's indirect effects on output and employment'.

Indicators of direct, indirect and total contribution of tourism to the economy of Australia

Source: Salma, U. (2002). Indirect economic contribution of tourism to Australia. Bureau of Tourism Research. Tourism Research Report, 4(2), 43-47.

Example

$1,000 of tourist expenditure and an MPC of 1/2

Multiplier =

= $2,000

Multiplier =

M = marginal (extra)

P = propensity (inclination)

C = consume (spending) MPC

S = savings (money out of circulation) MPS

A more simple formula is: Multiplier = 1/MPS

Income Multiplier Formula

The Power of Travel

$1,000

0.5

MPC