TOURISM INDUSTRY ON ECONOMIC ACTIVITY: AN ANALYSIS

A Research Paper
Presented to Mr. Inesio G. Sadiangcolor
Faculty of Graduate School Program
Batangas State University
Batangas City

In Partial Fulfilment
Of the Requirements for the Degree
Master in Business Administration

By:
Tobeo, Dafniejo P.
Villanueva, Crizzel G.
Marqueses, Sarah S.

December 2017
 ABSTRACT

The paper entitled “Tourism Industry on Economic Activity: An Analysis” primarily aimed
to determined how tourism industry significantly affects the different economic activities such as
exchange rate, interest rate, unemployment rate, and disposable income of the Philippines.
For the first and second objectives, the researchers gathered and compiled different
information to support the study. This information was only gathered from reliable sources such
as government websites and books. For the first objective, the findings show that the estimated
total of tourist in the Philippines, including foreigners, is increasing over the years. For the second
objective, findings show that even tourism have some negative impacts on our economy, it has a
lot of positive effects on the aforementioned economic activities. Tourism industry has a significant
positive impact on the volatility of exchange rate, on the changes of interest rate, on the movement
of unemployment rate, and the increase or decrease of the disposable income.

Introduction

A nation's economy can be highly volatile and is often a function of a variety of factors.
Such factors may contribute to the growth of the economy or worst, to slow down economic
growth. Economic growth represents the expansion of the country’s potential GDP or national
output. It also involves the growth of potential over the long run. (Samuelson et al. 2001). It is
important because it keeps society moving in a positive, productive direction. The more we grow,
the better our society becomes. New advances in technology and industry have brought society
a long way, and it will continue to grow and change as time goes on.
In order to achieve economic growth, one factor considered to be a big help is the tourism
industry. Tourism as an agent of economic growth and development is frequently derived from a
capital-output ratio analysis, with the capital-output ratio being based on the amount of capital
required to produce a single unit of output in the economy.Typically, tourism can be thought of as
a bundle of goods and services combined together with a fixedproportion. This is because tourists,
for instance, cannot substitute transportation for food, hotels or otherservices. This is the same
assumption used by Blake and Gillham (2001). Outbound tourism demanded byhouseholds is a
function of disposable incomes. Inbound tourism demanded by foreigners is a function oftourism
prices and exchange rates (Wattanakuljarus, 2006).Tourism is one of the significant industry
sectors contributing to the economy of the country, generating substantial foreign exchange
inflows, creating employment and makes large contributions to government revenues. It has been
also recognized as an important contributor through the creation of jobs, livelihood and investment
opportunities (NSCB, 2010).
In this paper, the researchers explained how tourism industry provide a significant
movement to every aspect of economic activities such as exchange rate, interest rate,
unemployment rate, and disposable income.

Statement of the Problem

This section sought to answer the following:

1. What is the status of the Philippines’ Tourism Industry?

2. How tourism industry affects the Philippines’ economy in terms of:
2.1. exchange rate;
2.2. interest rate;
2.3. unemployment rate;
2.4. disposable income
Scope and Limitations
 This study focused on different economic activities that is being affected by tourism
industry in the Philippines. The researchersgathered different articles to support the objectives
of the study. The supporting articles used were timely and was derived from reliable sources to
preserve the consistency and truthfulness of the information.

Significance of the Study

Different sectors of the society may derive significant benefits from the results of this study.
To the national and local government officials, this will be another wake-up call for them
to be more cautious in doing promotions and creating programs for the betterment of the tourism
industry.
To the tourists, they will be informed on their significant part in boosting our economy by
transcending the different economic activities of the country.
To the future researchers of Batangas State University, they may use this paper on related
topics or use this as reference in pursuing a similar study.

Status of Philippines’ Tourism Industry

Tourism makes an important part to the economy of the country. The growth of the
economy had been into a major change since the end of the People Power Revolution up until to
the present time because of the tourism growth.
In 2000, the Philippines' tourist arrivals totaled 2.2 million. In 2003, it totaled 2,838,000, a
growth of almost 29%, and was expected to grow as much as 3.4 million in 2007. In the first
quarter of 2007, the tourist arrival in the Philippines grew as much as 20% in same period last
year. In 2011, the Department of Tourism recorded 3.9 million tourists visiting the country, 11.2
percent higher than the 3.5 million registered in 2010.
In 2012, the Philippines recorded 4.27 million tourist arrivals, after the Department of
Tourism launched a widely publicized tourism marketing campaign entitled "It's More Fun in the
Philippines".
The tourism industry employed 3.8 million Filipinos, or 10.2 per cent of national
employment in 2011, according to data gathered by the National Statistical Coordination Board.
In a greater thrust by the Aquino administration to pump billion to employ 7.4 million people by
2016, or about 18.8 per cent of the total workforce, contributing 8 per cent to 9 per cent to the
nation's GDP (INQUIRER.net).
According to the Philippines Statistics authority (PSA), as measured by the share of
Tourism Direct Gross Value Added (TDGVA) to total GDP, the contribution to the economy was
estimated at 8.6 percent in 2016. The TGVA amounted to P1234 billion (US$25 billion) in 2016,
higher by 13.7 percent compared to the previous year’s P1093 billion (US$22 billion (Shead).
For the month of May 2017, visitor arrivals reached a total of 532,757, an increase of
19.60% compared to the May 2016 visitor count of 445,449. It could be noted that from 2012 to
2015, the month of May only generated more than 300,000 visitors while it produced more than
400,000 visitors last year. For the first time this year, visitor arrivals in May surpassed the 500,000
mark providing a bright outlook for Philippine tourism. This positive growth in arrivals can be
attributed to aggressive marketing efforts and international events which included the
ASEAN@50 meetings held in the country.

International Arrivals
 May 2013- 2017
2017 532,757
2016 445,449
2015 413,937
2014 364,598
2013 362,062
Sources of Data: Department of Tourism

Tourism Industry Effects on Exchange Rate

The tourism industry generates substantial economic benefits to both host countries and
tourists home countries. Especially in developing countries, one of the primary motivations for a
region to promote itself as a tourism destination is the expected economic improvement. As with
other impacts, this massive economic development brings along both positive and negative
consequences. Tourism expenditures generate income to the host economy and can stimulate
the investment necessary to finance growth in other economic sectors. Some countries seek to
accelerate this growth by requiring visitors to bring in a certain amount of foreign currency for
each day of their stay. An important indicator of the role of international tourism is its generation
of foreign exchange earnings. Tourism is one of the top five export categories for as many as
83% of countries and is a main source of foreign exchange earnings for at least 38% of countries.
Foreign tourists change their foreign currency into the local currency to spend on its own needs.
At the same time, in balance of payment terms, tourism expenditure is viewed as being equivalent
to export income for traveler- receiving countries. Conversely, tourism expenditure amounts to an
import cost for visitor – generating countries.

Tourism Industry to Interest Rate and Inflation

The economic effects of visitor’s presence at destinations arise from the fact that travelers
and tourist spend their money on a wide variety of goods and services. This expenditure seen as
an injection of financial resources into the host economy, thereby creating new levels of consumer
demands (source). With this, it will fuel’s the circulation of money within the economy. As this
happen, the price of commodities will rise and inflation takes place.Rising prices, often the
consequence of economic expansion, have spared neither developed nor developing countries
Obviously, tourism also contributes to the price spiral. Rising tourism prices may be due to either
an increase in tourism demand or higher production costs.

Tourism Industry to Unemployment Rate

The rapid expansion of international tourism has led to significant employment

creation.Tourism can generate jobs directly through hotels, restaurants, nightclubs, taxis, and
souvenir sales, and indirectly through the supply of goods and services needed by tourism-related
businesses. In a labour-intensive tourism industry increased demand leads to stronger
employment in local service industries and an acceleration of the wage-price spiral as the higher
labour costs of production are passed on as higher prices for tourism services.
There are three different types of employment offered by tourism. Direct employment is
employment at tourismfacilities, resulting from tourist consumption. Indirect employment is also a
result of employment in the tourismsupply sector, however not directly resulting from tourist
expenditure. Induced employment occurs as additionalemployment resulting from tourism
multiplier effects (Ibid).
 Employment in the Philippine tourism sector is currently just over 5 million workers.
Employment in the tourism-related industries was estimated at 5.2 million in 2016, higher by 5.1
percent compared to 5 million in 2015. Share of employment in tourism-related industries to total
employment in the Philippines was recorded at 12.8 percent in 2016 (Shead).

Tourism Industry to Disposable Income

Leisure tourism is considered to be price and income elastic, and therefore very
responsive to economic conditions in both host and traveller- generating countries. Tourism is an
expenditure-driven economic activity (Mihalic, 2002), that often a significant source of income in
many countries (Mok& Iverson, 2000).To a certain extent, the impacts of employment andincome
are related as direct, indirect and induced effects can be distinguished in both cases. There is
also aconnection between increased income and increased employment, although the pace of
growth is not necessarilyof equal standard. The type of tourist activity influences the effects on
employment, as different types of tourismare labor-intensive at different levels; for example, the
accommodation facilities employ a large number of laborforce at destinations and thus often
require greater amounts of capital as well.
The TDGVA estimate is based on the latest results of the Philippine Tourism Satellite
Accounts (PTSA) which also provides information on tourism expenditure and employment.
Inbound tourism expenditure, which refers to expenditure of the non-resident visitors
(foreign visitors and Filipinos permanently residing abroad) within the Philippines, grew by 2.3
percent in 2016, amounting to P313.6 billion (US$6.3 billion) from P306.6 billion (US$6.13 billion)
in 2015.
Domestic tourism expenditure, which includes expenditure of resident visitors within the
country either as domestic trip or part of an international trip, grew by 19.1 percent from P1770.7
billion (US$42.2 billion) in 2016 (Shead).

Findings and Recommendation

The following were the results and interpretation of the researchers on this study.
The trend of tourism industry in the of Philippines showed an increasing pattern from 2000
up to the present. As presented in the status of the Philippines’ tourism industry, the year 2000-
2012 includes the total number of tourist including locale and foreigners. However, the year 2013
up to 2017, the presented data are the foreign tourist only. Both shows increasing number of
tourist visiting the countries every year.
The researchers concluded that tourism industry of the Philippines is increasing overtime.
It may be due to the exerted efforts of the government to promote the tourist spots of the country
as well as the hospitable people around us.
On the other hand, the researchers found out the following effects of the tourism industry.
As the foreign tourist keep coming to the Philippines, they were injecting foreign currencies on
our country. An increase of foreign currencies circulating within the Philippines’ economy will lead
to appreciation of Philippine Peso. Even the consumption of our locale whenever they go on travel
to different tourist spots in the country also fuels the money circulating within the country. This will
cause inflation due to large amount of money in the economy. Thus, government intervention to
stabilized interest rate will prevail to lessen the inflation rate. On the other hand, increase of
tourism industry will also increase the demand for goods and services especially on hotels and
restaurants. This demand also increase demand for manpower. It will decrease the number of
unemployed individual. Additional income for the locale to support their daily living can be
provided by tourism industry. With this, disposable income of the locales will also increase.
From the findings and conclusions above, the researcher proposed the following
recommendations:
1. To the Government, primarily, the Department of Tourism, the researchers are
recommending them to attract more foreign tourists than domestic to avoid inflationary pressure
while increasing the consumption rate.
2. To the future researchers, a study about how tourism businesses being affected by
different government interventions such as politics and tax reform.

Sources:
Shead, Bob, Tourism Industry in the Philippines, “www.aseanbriefing.com”