The Role of Tourism and Hospitality in Economic

Development
Lesson Objectives:

At the end of this module, I should be able to:

1. Understand the role of tourism and hospitality in economic

development.

2. Identify the economic impacts of tourism and hospitality.

3. Identify ways on how to maximize the economic effect of

tourism and hospitality.

Materials:

SAS

References:

Lansangan-Cruz,Zenaida (2018)

MACRO PERSPECTIVE OF

TOURISM AND HOSPITALITY

Carino C.E., Beltran M.P.N. (2013)

The Hospitality Industry; An

Introduction Manila, Philippines:

Mindshapers Co. Inc.

Productivity Tip: Using a calendar, choose 2 days this week when you’ll review the content of this
module.

Set aside 20-30 minutes for this review.

A. LESSON PREVIEW/REVIEW

1) In the previous module, we learned about the origins of tourism and hospitality in the Philippines. We

identified the different events that helped in the development of tourism and hospitality. We also
looked

at the plans and programs of the Department of Tourism (DOT) for the continuous development of

tourism and hospitality. Afterwards, we looked into the factors that favor the growth of tourism and

hospitality.

To review, can you identify 3 plans or programs of DOT as well as 3 factors that favor the growth of

tourism and hospitality?

Programs or plans of the Department of Tourism (DOT)

1.

2.

3.

Factors that favor the growth of tourism and hospitality

1.

2.

3.

In this module, we will learn about the role of tourism and hospitality in economic development. We
have

learned from our previous module that one importance of tourism and hospitality is general economic

development. We’ll focus our learning in this module on the economic impacts of tourism and
hospitality.

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________

This document is the property of PHINMA EDUCATION

2) Activity 1: What I Know Chart, part 1 (3 mins)

Do you know anything about hospitality and tourism? Try answering the questions below by writing your

ideas under the first column What I Know. It’s okay if you write key words or phrases that you think are

related to the questions.

What I Know Questions: What I Learned (Activity 4)

What is the role of hospitality

and tourism in the economy?

What are the effects of

hospitality and tourism in the

economy?

B.MAIN LESSON

1) Activity 2: Content Notes

The Role of Tourism and Hospitality in Economic Development

Many developing countries around the world have been using tourism and hospitality development as
an

alternative to boost the growth of economic development. This is because there has been a continuous

demand for international travel for international countries and as income in the developed countries

increases, the demand for tourism and hospitality increases at a faster rate. The developing countries

need the spending of the developed countries as foreign exchange to aid in their countries’ economic

development.

The Organization for Economic Cooperation and Development (OECD) has concluded that tourism and

hospitality provides a major opportunity for growth to countries that tourism and hospitality provides a
major opportunity for growth to countries that are at the intermediate stage of economic development
and

require more foreign exchange earnings.

Tourism and hospitality is an invisible export which differs from international trade in the following
ways:

 In tourism and hospitality, the consumer collects the product from the exporting country. This

eliminates the freight costs for the exporter, except in cases in which the airline used are those of

the receiving country.

 The demand for pleasure travel is largely dependent on non-economic factors such as local

disturbances, political unrest, and changes in fashionability of resorts/countries created mostly by

media coverage. At the same time, international tourism and hospitality is both price elastic and

income elastic. This means that changes in price and income will also change the demand for

pleasure travel.

 By using specific fiscal measures, the exporting or

tourist-receiving country can manipulate exchange rates so

that those for tourists are higher or lower (normally lower is

implemented in order to attract large numbers of tourists)

than those in other foreign trade markets. Also, tourists are

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________
This document is the property of PHINMA EDUCATION

allowed to buy in domestic markets at the same prices as the local residents (the exceptions are

duty-free shops).

 Tourism and hospitality is a multifaceted industry that directly affects several sectors in the

economy, such as hotels, shops, restaurants, local transport firms, entertainment establishments,

handicraft producers, and indirectly affects many others, such as equipment manufacturers and

utilities.

 Tourism and hospitality brings many more non-monetary benefits and costs than other export

industries, such as social, cultural and environmental benefits and costs.

Economic Impact

When travelers outside the destination area spend 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 indirect 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 from the tourists. Indirect or secondary

effects mean that the money paid by the tourists to

businesses are in turn used to pay for supplies, wages

of workers and other items used in producing the

products or 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.

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________

This document is the property of PHINMA EDUCATION

Multiplier Effect ( Mill, R.C. and Alastair Morrison. The Tourism System. Dubuque, IA: Kendall/Hunt,
1998)

When a tourist spend into the destination, the initial spending is received as income by local tour

operators, handicraft owners, hoteliers and taxi drivers. In the first round of transaction, the hotelier
may

use some of the money received to buy some supplies, pay for wages and retain some profits. The

income on 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 or food and may put it into savings. The money spent on
supplies in the third round of spending goes for things such as seeds, fertilizers 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. To estimate

the total economic impact on an area, imports must be subtracted from the income generated by
visitors.

Where:

K = the multiplier

y = the change in income generated by E

E = the change in expenditure (the initial money spent by the tourist)

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________

This document is the property of PHINMA EDUCATION

The size of the multiplier depends on the extent to which the various sectors of the economy are linked

to one another. When the tourism and hospitality sectors buy heavily from other local economic sectors

for goods and services, there will be a smaller tendency to import and the multiplier will be greater than

if the reverse is true. Most of developing countries have an income multiplier range between 0.6 and
1.2,

while the developed countries have a range between 1.7 and 2.0.

Undesirable Economic Aspects of Tourism

Some undesirable economic aspects of tourism and hospitality

are higher prices and economic stability. 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

change in prices and income. These fluctuations may result in

economic instability.

How to Maximize the Economic Effect of Tourism and Hospitality

Growth Theories

Some economic growth theories have been proposed to maximize the economic effect of tourism and

hospitality within a destination area. These are the theory of balanced growth and the theory of

unbalanced growth.

Proponents of the theory of balanced 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 needs the

support of other industries. Its objective is to integrate tourism and hospitality with other economic

activities. To obtain maximum economic benefit, tourism and hospitality goods and services should be

locally produced/

Supporters of the theory of unbalanced growth see tourism and hospitality as the spark to economic

growth. While the proponents of the theory of balanced growth stress the development of supply,

supporters of the theory of unbalanced growth emphasize the need to expand demand. As demand

increased through the vigorous development of tourism and hospitality, other industries will move to

provide products and services locally.

Economic Strategies

The key to maximizing the economic effects of tourism and hospitality is to maximize the amount of

revenue and jobs developed within the region. To attain this objective, some economic strategies have

been adapted, such as import substitution, incentives, and foreign exchange.

SDH ADHTM
TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________

This document is the property of PHINMA EDUCATION

Import Substitution

It imposes quotas or tariffs on the importation of goods which can be developed locally. It can also grant

subsidies, grants, or loans to local industries to encourage the use of local materials. Its objective is 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 tax exemptions, tax

holidays, loans with low interest rates or low rents. However, before implementing any inventive
strategy,

a destination should first examine the performance of the schemes of other countries in light of their

resources and development objectives; research the actual need of investors; design codes of
investment

concessions related to specific development objectives with precise requirements of investors; and

establish targets of achievements and periodically monitor and assess the level of realization of such

targets.

Foreign Exchange

Many countries have placed restrictions on spending in order to maximize foreign exchange earnings.

They have limited the amount of their own currency that tourists can bring in and take out of the

destination to ensure that foreign currency is used to bills in the host region. Tourists may be required to
pay hotel bills in foreign currency. Visitors may be required to show that they have enough money for

their stay before they are permitted to enter the country or they may even be required to enter with a

specified amount of foreign currency for the duration of their visit.

2) Activity 3: Skill-building Activities

Let’s practice! After completing each exercise, you may refer to the Key to Corrections for feedback.

Try to complete each exercise before looking at the feedback.

Exercise 1: Search for the following tourism and hospitality words we have encountered in this module.

tourism multiplier

tourist expenditure

direct effects

economic instability

secondary effects

leakage

non-monetary benefit

hotel

taxi

price elastic

wages

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________

This document is the property of PHINMA EDUCATION

Exercise 2: Short answer questions

a. What are the positive effects of tourism and hospitality in the economy?

a. What are the negative effects of tourism and hospitality in the economy?

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________

This document is the property of PHINMA EDUCATION

3) Activity 4: What I Know Chart, part 2

It’s time to answer the questions in the What I Learned chart in Activity 1. Log in your answers in the

table.

4) Activity 5: Check for Understanding

Select one popular tourist destination and identify at least 3 positive and 2 negative effects on the

economy of the province. Explain why you think these are positive and negative effects in the economy

of your chosen destination. Identify also at least 2 possible ways to help the economic growth though

tourism and hospitality.

C. LESSON WRAP-UP
1) Activity 6: Thinking about Learning

Congratulations for finishing this module! Shade the number of the module that you finished.

Did you have challenges learning the concepts in this module? If none, which parts of the module

helped you learn the concepts?

__________________________________________________________________________________

__________________________________________________________________________________

____________________

Some question/s I want to ask my teacher about this module is/are:

__________________________________________________________________________________

__________

__________________________________________________________________________________

__________

FAQs

1. What is leakage?

Leakage is the value of goods and services that must be imported to service the needs of tourism and

hospitality.

2. What is economic instability?

Economic instability means the economy of the region or country shows wide fluctuations in key

measures of economic performances, such as gross domestic product, unemployment or inflation.

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________

This document is the property of PHINMA EDUCATION

KEY TO CORRECTIONS

Answers to Skill-Building Exercises

Exercise 1: Word Search

Exercise 2: (Possible answers only since answers will vary.)

a. What are the positive effects of tourism and hospitality in the economy?

One positive effects of tourism and hospitality is it provides employment. It helps in giving

jobs to the local residents which they can use to pay for rent, food or save up. It also helps

companies in the tourism and hospitality industry get income which are used to pay to their

suppliers and in turn, these suppliers use it to pay for the raw materials or wages for their

own employees. All these activities help the economy in general.

b. What are the negative effects of tourism and hospitality in the economy?

Some negative effects of tourism and hospitality are higher prices and economic instability.

Because of the tourists’ demand, the prices can increase even for the local residents. There

is also economic instability because tourism is seasonal. Prices and income may change

SDH ADHTM

TOU 040: Macro Perspective of Hospitality and Tourism

Student Activity Sheets Module #5

Name: ______________________________________________________________

Section: ____________ Schedule: _______________________________________

Class number: _______

Date: _______________
This document is the property of PHINMA EDUCATION

due to the different demand for tourism and hospitality.

Answers to Checking for Understanding:

Possible answers only since answers will vary. Positive effects would include: employment, income for

tourism and hospitality companies, income for suppliers for tourism and hospitality companies. Negative

effects would include: economic instability and higher prices. Maximizing economic effect includes:
import

substitution, incentives and foreign exchange.