PAMANTASAN NG LUNGSOD NG MAYNILA

College of Business and Government Management

Institute of Tourism and Hospitality Management ITM 2105 – Sustainable Tourism

Topic 4: Tourism Impacts on the Economy

I. Direct, Indirect, and Dynamic Impacts According to the United Kingdom’s Overseas Development Institute (2007), tourism contributes to the
economy along three “pathways.” These are direct, indirect, and dynamic effects. For the World Travel
and Tourism Council (WTTC), besides direct and indirect effects, travel and tourism also produces induced
effects.

According to the WTTC (2015):

1. Direct Effects Are produced when tourists spend for such

commodities as accommodation, transportation,
entertainment, and attractions.

Visitor Exports – refer to spending by international

tourist in a country. Such spending is considered as
export because the visitors who are from other
countries spend for goods and services that are
produced in a country.

2. Indirect Contribution Of tourism to the economy comes in the form of

investments in tourism, government spending in
tourism, and the effect of purchase from suppliers
(WTTC 2015).

3. Induced Effects Are the collective spending by direct and indirect

employees on food and beverage, recreation,
clothing, housing, and household goods (WTTC
2015)
1
 4. Dynamic Effects Refers to the longer-term macro-level effects, such
as general enhancement of skills within the
economy, provision of better social services
(health, education, security), and infrastructure
(roads, airports, Internet).

According to ODI’s research, direct affects in terms of formal-sector jobs can range from 10% to 80% of income
of poor people.

As far as indirect effects are concerned, ODI discovered that they tend to be the biggest where the linkages are
strongest, such as in big, rich diversified economies.

To increase the indirect impacts, it is important to develop the linkages among the value chain. For example,
increasing the supply of fresh fruit and vegetables from Lao farmers to restaurant; increasing the supply of Lao
silk and cotton for handicraft production (replacing imports); and restructuring product offer in rural villages;
and increasing tourist time and expenditure in the rural areas (Hummel in ODI 2007).

Multiplier Effect – refers to the number of times tourism income is re-spent across sectors within the
local economy. The higher the multiplier, the bigger the impact on the local economy.

Indirect effects boost the economic impact of tourism by 50% to 90% in small, poor countries.

In terms of dynamic effects, infrastructure can stimulate non-tourist growth and redistribution to yellow brick
road” to export diversification. Tourism often pays a significant share of tax.

II. Tourism Satellite Accounts The World Travel and Tourism Council (WTTC) and the World Tourism Organization (WTO) are the main
advocates of the TSA system.

Tourism Satellite Accounts extract from national accounts the share of tourism from the different sectors of the
economy. By doing so, it permits the measurement of direct economic impact of tourism to the Gross Domestic
Product (GDP) and other indicators, such as jobs, investment, and export earnings. As such, it enables
comparison with other economic sectors listed in the national accounts (Baker 2013).

III. Tourism and the Global Economy According to the World Travel and Tourism Council, travel and tourism’s total (direct and indirect) contribution
to world GDP was 9.8% of world GDP in 2014 equivalent to US$7.6 trillion.

2
 The sector directly and indirectly employs nearly 277 million or 1 in 11 jobs on the planet.

Travel and tourism also generated US$ 1.4 trillion in visitor spending (exports), US$ 3.6 trillion in domestic
spending, and US$ 814 billion in capital investment in 2014.

The sector was growing at 3.6% per year, faster than the wider economy in 2014.

IV. Tourism’s Impact on the ASEAN Economies Tourism makes significant contributions to the economies of the ten member countries of the Association of
Southeast Asian Nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore,
Thailand, and Vietnam.

Travel and tourism directly contributes more than 5% to the Gross Domestic Products of the ASEAN economies,
which amounts to USD 118 billion.

Including the indirect effects, the total contribution to the GDP was 13%, equivalent to roughly USD 292 billion.
Travel and tourism also contributes more than 11% of the total employment, or more than 29 million jobs.
The ASEAN received a total of USD 112.1 billion in visitor exports (tourist receipts), representing nearly 12% of
total exports.

It also received USD 48.9 billion in investments in travel and tourism, equivalent to more than 9% of total
investments in ASEAN.

V. Tourism and the Philippine Economy Based on the Philippine Tourism Satellite Account, as measured by the share of tourism direct gross value added
(TDGVA) to total gross domestic product (GDP), the contribution of tourism to the economy was estimated at
7.8% in 2014.

Tourism Direct Gross Value Added (TDGVA) – serves as the indicator to measure the value added of
different industries in relation to tourism activities of both inbound and domestic visitors in the country.

The TDGVA amounted to P982.4 billion in 2014, higher by 14.0% compared to previous year’s P861.7 billion.

Tourist expenditure is an important indicator of tourism’s economic impact. It is based on tourist arrivals, their
length of stay, and the average spending per day.

VI. Beneficial Impacts of Tourism on the According to Swarbrooke (1999), the main beneficial impacts of tourism on the economy are:
Economy

3
1. Jobs Tourism generates jobs, with the most optimistic
estimate being one job created for every tourist received
by the country.

Employment is generated throughout the tourism value

chain.

Value Chain – refers to the suppliers of needed inputs

for tourism operations, as well as the other entities that
benefit indirectly from tourism development.

2. Livelihood Generation Tourism provides economic opportunities for other

industries. Example: Farming communities can venture
into agritourism, offering farm-related experiences to
tourist.

Tourism and travel-related businesses support an ecology

of several other smaller operations. Example: vendors
who boards the vehicle to sell chicharon.

In the studies of economic impact of tourism in India

(Rupeshkumar and Goodwin 2015), it was found out that
micro-enterprises, homestead farmers, and sole traders
have all benefitted from becoming involved in the tourism
supply chain.

3. Hometown’s Share of Tourism Income The tourists’ places of origin and transit routes, which
include areas used as pit stops by travelers, take sizeable
chunk of travel and tourism-related expenditure.

4. Taxes and Fees These include passport processing fee, fees for National
Statistics Office (NSO), certificates required for securing a
passport, travel tax, documentation fee for travel tax
exemption, airport terminal fee, airport space rental fees,
and parking fee.

4
 The government also collects value-added tax from
tourism-related business establishments, business permit
fees, barangay clearance, and taxes paid by employees in
tourism establishments.

Negative Impacts of Tourism on the Economy

1. Leakage Many such products and services cannot be sourced
locally. As such some money is used to pay for such goods
and services.

2. Poor Quality of Jobs Workers in tourism suffer from low wages, unpaid
overtime pay, lack of security of tenure, and seasonality.

3. Price Increase When tourists come too suddenly, the local economy is
not able to respond by augmenting the supply of goods
and services.

This creates a situation of shortage, which results in price

increase.

4. Overdependence Tourism is highly profitable, the local economy becomes

monolithic or reliant on a single economy, one which is
dependent on tourism.

Overdependence on tourism increases the vulnerability

of the local population to natural as well as man-made
shocks.

5. Opportunity Cost Another dark side to tourism is that investing in tourism

development requires billions of pesos for infrastructure
alone, such as airports, roads, and terminals.

VII. Determinants of Economic Impact According to Messerli (2011), these are:

5
1. Economic Diversification A well-diversified economy will be better able to provide
such inputs, compared to one which is underdeveloped or
totally dependent on tourism.

It follows that highly developed economies will have

higher multiplier effects from tourism expenditure
because the money is retained longer and will circulate
many more times.

On the other hand, an undeveloped economy will lose

much of the initial income through leakages, because the
inputs for tourism operations have to be bought from
outside the host economy.

2. The Strength of Backward and Forward Many places in the Philippines have outstanding natural
Linkages resources but are not able to draw tourists because of the
absence of tour operators.

3. Seasonality Seasonality also determines the extent of economic

impact.

All things being equal, a destination which is open all

year-round stands to earn more money than one which is
open for just a few months.

4. Quality of Human Resources The host destination can gain a lot in terms of all levels of
impacts if the employees hired for tourism
establishments are from the local community.

This is because the locals will also spend the money they
make within their community.

5. Women Agency or Women Based partly on their own capacity and the amount of
Empowerment capital that they have or can avail of.

According to Senator Bam Aquino, most micro-

6
enterprises, such as sari-sari stores, dress shops, fruit
stalls are owned and managed by women.

Micro-enterprises also constitute 90% of all registered

businesses in the country.