Tourism Marketing Chapter- 3 Economic Impact of Tourism Negative Economic Impacts of Tourism:    There are many hidden costs

to tourism, which can have unfavourable economic effects on the host community. Often rich countries are better able to profit from tourism than poor ones. Whereas the least developed countries have the most urgent need for income, employment and general rise of the standard of living by means of tourism, they are least able to realize these benefits.  Among the reasons for this are large-scale transfer of tourism revenues out of the host country and exclusion of local businesses and products. Negative Economic Impacts of Tourism: Leakage Enclave tourism Infrastructure cost Increase in prices Economic dependence Seasonal character of jobs Negative Economic Impacts of Tourism 1. Leakage The amount of tourist expenditure that leaves the country in the mode of commission, imports, foreign investor’s profit are called leakage. n In most all-inclusive package tours, about 80% of travellers' expenditures go to the airlines, hotels and other international companies, and not to local businesses or workers. n In addition, significant amounts of income actually retained at destination level can leave again through leakage. n A study of tourism 'leakage' in Thailand estimated that 70% of all money spent by tourists ended up leaving Thailand n Estimates for other Third World countries range from 80% in the Caribbean to 40% in India. Two main ways of leakage

n When tourists remain for their entire stay at the same cruise ship or resort. food and drinks must often be imported. food. an export leakage arises when overseas investors who finance the resorts and hotels take their profits back to their country of origin. . not much opportunity is left for local people to profit from tourism. n Much of the income from tourism expenditures leaves the country again to pay for these imports. tourist's) standards or the country simply doesn't have a supplying industry. n Especially in LDC’s. since local products are not up to the hotel's (i. which provides everything they need and where they will make all their expenditures.v Import leakage n This commonly occurs when tourists demand standards of equipment. they are the only ones that possess the necessary capital to invest in the construction of tourism infrastructure and facilities. and other products that the host country cannot supply. especially in poor developing destinations. v Export leakage n TNC's have a substantial share in the export leakage. 2. n The average import-related leakage for most developing countries today is between 40% and 50% of gross tourism earnings for small economies and between 10% and 20% for most advanced and diversified economies. n All-inclusive hotels generate the largest amount of revenue but their impact on the economy is smaller per dollar of revenue than other accommodation types.e. n Often. Enclave tourism n Local businesses often see their chances to earn income from tourists severely reduced by the creation of "all-inclusive" vacation packages. n As a consequence of this.

5. which are costly activities for the government. n Non-river cruises carried some 8. Economic dependence of the local community on tourism . Increase in prices n Increasing demand for basic services and goods from tourists will often cause price hikes that negatively affect local residents whose income does not increase proportionately. n Developers may want the government to improve the airport. especially in the Caribbean.n All-inclusives also import more and employed fewer people per dollar of revenue than other hotels. and possibly to provide tax breaks and other financial advantages. n This makes it more difficult for local people to meet their basic daily needs. 4. guests are encouraged to spend most of their time and money on board. n On many ships. roads and other infrastructure.7 million international passengers in 1999. n Public resources spent on subsidized infrastructure or tax breaks may reduce government investment in other critical areas such as education and health. n Smaller trickle-down effect on local economies. Infrastructure cost n Tourism development can cost the local government and local taxpayers a great deal of money. 3. and opportunities to spend in some ports are closely managed and restricted. n The cruise ship industry provides another example of economic enclave tourism. n Tourism development and the related rise in real estate demand may dramatically increase building costs and land values.

Seasonal character of jobs Problems that seasonal workers face include: n job (and therefore income) insecurity n no guarantee of employment from one season to the next n difficulties in getting training. employment-related medical benefits. for instance. and recognition of their experience n unsatisfactory housing and working conditions.n Diversification in an economy is a sign of health. Economic recession. have embraced tourism as a way to boost the economy. especially developing countries with little ability to explore other resources. 6. In small island developing states. 30% of the workforce depends directly or indirectly on tourism. n In The Gambia. however if a country or region becomes dependent for its economic survival upon one industry. the impacts of natural disasters such as tropical storms and changing tourism patterns can all have a devastating effect. Foreign exchange earnings . n Many countries. Positive Economic Impacts of Tourism Foreign exchange earnings Contributions to government revenues Employment generation Infrastructure investment Contribution to local economies 1. it can put major stress upon this industry as well as the people involved to perform well. percentages can range from 83% in the Maldives to 21% in the Seychelles and 34% in Jamaica n Over-reliance on tourism carries risks to tourism-dependent economies.

n 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. and by direct levies on tourists such as departure taxes. 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 2. n For example. n Tourism can generate jobs directly through hotels. . Employment generation n The rapid expansion of international tourism has led to significant employment creation. and indirectly through the supply of goods and services needed by tourism-related businesses. and souvenir sales. 3. n Indirect contributions come from taxes and duties levied on goods and services supplied to tourists. the hotel accommodation sector alone provided around 11. n Tourism supports some 7% of the world's workers. taxis. and personal tax contribution worldwide was over US$ 800 billion in 1998 .n Tourism expenditures generate income to the host economy and can stimulate the investment necessary to finance growth in other economic sectors. restaurants. n The WTO estimates that travel and tourism's direct.3 million jobs worldwide in 1995.a figure it expects to double by 2010. nightclubs. n An important indicator of the role of international tourism is its generation of foreign exchange earnings. indirect. Contribution to government revenues n Direct contributions are generated by taxes on incomes from tourism employment and tourism businesses.

. as not all tourist expenditures are formally registered. tourism revenues are often used to measure the economic value of protected areas. and has a great multiplier effect as it is spent over and over again. street vendors. Stimulation of infrastructure investment n Tourism can induce the local government to make infrastructure improvements such as better water and sewage systems. electricity. informal guides. telephone and public transport networks n This can improve the quality of life for residents as well as facilitate tourism. n Money is earned from tourism through informal employment (e. Contribution to local economies n As the environment is a basic component of the tourism industry's assets. n The positive side of informal employment is that the money is returned to the local economy. 5.4. rickshaw drivers). roads. n Other local revenues that are not easily quantified.g. n The WTO estimates that tourism generates an indirect contribution equal to 100% of direct tourism expenditures.

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