Macro Perspective of Tourism and Hospitality
Economics of Tourism
Lesson Proper
The Role of Tourism in Economic Development
- Several developing countries have used tourism as an alternative to help economic growth.
- There is a continuous demand for international travel in developed countries.
- Income in developed countries increases.
- Developing countries need foreign exchange to aid their economic development.
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 outside sources.
Tourist expenditures also increase 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 source 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 businesses such as hotels, restaurants, car
rentals, 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 businesses 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 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.
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 businesses such as hotels, restaurants, car
rentals, 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 businesses 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 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.
Undesirable Economic Aspect of Tourism
- Some undesirable economic aspects of tourism and hospitality 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.
- Since pleasure travel is a discretionary item, it is subject to changes in prices and income. These
fluctuations may result in economic instability.