Let us put ourselves in the presence

of the Lord.
 Recap
•Importance of knowing the culture
•Cultural patterns by internal forces
•Cultural patterns by external forces
•Importance of Cultural Tourism
 Activity
•• Pictionary
Each group will have a representative
• Each will be given two minutes to draw and for his/her groupmates to
guess the word
• Topics will be about our previous discussion
Economic Impact of Tourism
 Learning Outcomes

• To be able to explain the role of tourism and hospitality

in economic development
• Analyze the economic impact of tourism and hospitality
on a destination area
• Differentiate the direct effects from the secondary of
tourist expenditures on the economy of the host area
Role of Tourism and Hospitality in Economic
Development

• It is considered an alternative to economic growth

• What are the reasons why it is considered an
alternative to help the economic growth?
 Reason 1

• There is continuous demand for international travel in

developed countries
 Reason 2

• Income in developed countries increases, the demand for

tourism and hospitality also increases at a faster rate
 Reason 3

• Developing countries need foreign exchange to aid their

economic development
• Organization for Economic Cooperation and
Development (OECD) mentioned that tourism and
hospitality gives major opportunity for growth to
countries that are at the intermediate stage of economic
development and require more foreign exchange
earnings.

• Who is OECD?
Organization for Economic Cooperation and
Development
• It is an intergovernmental economic organization with 36
member countries, founded in 1961 to stimulate
economic progress and world trade.
• Headquarters: Paris, France
• Some of mentioned Founders: United States, France,
Germany, United Kingdom, Turkey, Canada, Spain and
more.
 Tourism and Hospitality as an invisible
export

• This may differ from international trade in many ways

such as:
 1.

• Consumer collects the product from the exporting

country, thereby eliminating the freight costs for the
exporter
 2

• Demand for pleasure travel is largely dependent on non-

economic factors
 3

• The exporting or tourist-receiving country can

manipulate exchange rates so that those for tourists are
higher or lower than those in other foreign trade
markets.
• Also, tourists are allowed to buy in domestic markets at
the same prices as the local residents
 4

• It is multifaceted industry that directly affects several

sectors in the economy
 5

• It brings many more non-monetary benefits and costs

than other export industries
 Economic Impact
• Travelers outside the destination area spend on goods
and services within the destination
• Tourist expenditures increase level of economic activity
in the host area directly
• Tourism and hospitality increase foreign exchange
earnings to produce investment needed to finance
economic growth
• It provides source of income, employment and foreign
exchange
 Direct Effects

• This is income received directly

• Tourist expenditures received as income by businesses
such as hotels, restaurants, car rentals, tour operators
and retail shops
 Secondary Effects

• These are indirect effects

• 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
Positive Economic
Effects of Tourism
and Hospitality
 Economic effects
1.Effects on Income
2.Effects on Employment
3.Effects on the area’s balance of payments with
the outside world
4.Effects on investment and development
 Effect on Income
• The tourism and hospitality industry generates income within the
destination country
• It takes less time to increase income from tourism and hospitality
than from manufactured goods or other available options
• This comes from wages and salaries, interest, rent and profits.
Great portion comes form wages and salaries
• Income is also generated from interest, rent and profits namely
interest on paid loans to an airline to buy an aircraft for example
or rent paid to a landowner for car park.
• Income may come from direct taxation or indirect taxation
• Industry is income generator and income redistributor
Continuation of Effects on Income
• Flow of capital from one country to another, many countries limit
the amount of currency the nationals may take abroad for foreign
travel
• Most income is generated by organizations buying and selling
goods and services to tourists
This includes: • Local travel services
• Local food, drinks and • Local cultural events
flowers from resort areas • Shops for tourists’ needs
• Local craft for tourists • Specialized local housing
• Local cafes and restaurants such as pension small inns
• Tour guides and interpreters
 National Income

• This is the sum of all income in a country

• This is how the country’s economy is being measured
• Most common method for estimating the income generated from tourism
and hospitality is by determining the multiplier for a destination
 Tourism Multiplier

• What is a multiplier?
 Multiplier

• This is total effect, both direct and secondary, of an

external source of income introduced into the economy.
Tourism Multiplier or Multiplier Effect

• This is used to estimate the direct and secondary effects

of tourist expenditures on the economy of the country.
 Multiplier Effect
Local tour operator Spend

Increased personal
income
Save Seed
Handicrafts
Fertilizer

Imports
Raw (leakage)
materials
Tourist Purchase of supplies

Hotelier wages …
Rent …
Food
Wages
Services (taxi etc.) Savings
 What is Leakage?

• This is the value of goods and services that must be

imported to service that needs of tourism
 Undesirable Economic Aspects of Tourism

• Higher prices
• Economic instability
 Effects on Employment
• Tourism and Hospitality Industry offers more
employment opportunities than other economic sectors.
• It generates employment faster for developing nations
than the developed ones
Three types of employment:
• Direct Employment
• Indirect Employment
• Induced Employment
Direct Employment
• Generated as a result of providing goods
and services directly to tourist in hotels, Induced Employment
restaurants, bars, nightclub and the like
• People working in positions only
peripherally related to tourism and
Indirect Employment hospitality.
• Consists of those positions that are • Examples: construction workers,
associated with other tourism- merchants and professionals such as
related activities but are used by both doctors, accountants who service
the local resident and tourist. Shops employees working within the
and food wholesalers are considered
industrty
to be sources of indirect
employment.
 Effects of Balance of Payments
• Balance of Payments is an accounting of flow of goods,
services and funds in and out of the country during a given
period
• If the country pays or agrees to pay more money than it
receives, it has a deficit in its balance of payments
• If the country receives more money than it sends or exports,
it has a surplus in its balance of payments
Effects on Investment and Development

• Once an area becomes economically successful, more

investors come in either in tourism and hospitality
industry or other industries.
• This is what economists call as an accelerator concept
How to Maximize the Economic Effect of
Tourism
•Growth Theories •Incentives
•Economic •Foreign Exchange
Strategies
•Import Substitution
 Growth Theories

• This may maximize the economic effect of tourism

within a destination area
• 2 Growth Theories
Theory of Balanced Growth
Theory of Unbalanced Growth
 Theory of Balanced Growth
• Tourism is an important part of a broad-based economy
• Tourism needs the support of other industries
• Objective is to integrate tourism with other economic
activities
• Tourism goods and services should be locally produced
to obtain maximum economic benefit
 Theory of Unbalanced Growth

• Tourism is a spark to economic growth

• Emphasizes the need to expand demand
• Demand is increased through the vigorous development
of tourism, other industries will move to provide
products and services locally
 Economic Strategies
• Maximizing economic effects in tourism is to maximizing
the amount of revenue and jobs developed within the
region.
• Some economic strategies have been adopted such as
import substitution, incentives and foreign exchange
 Import Substitution

• This will impose quotas or tariffs on the importation of

goods which can be developed locally.
• It also grants subsidies, grants or loans to local industries
to encourage the use of local materials
• This will minimize leakage.
 Incentives

• Use of incentives encourage the influx of capital, both

local and foreign, may develop tourism supply
 Examples of Incentives
• Tax exemptions/reductions on imported machinery,
materials, etc.
• Reduction in company taxation by means of favourable
depreciation allowances on investment, or special
treatment in relation to excise taxes, sales taxes,
income taxes, turnover taxes, profit taxes or property
taxes
• Tax holidays (limited period)
 Continuation of Examples of Incentives

• Guarantee of stabilization of tax conditions (for up to 20

years)
• Grants (for up to 30% of total capital costs)
• Subsidies (guaranteeing minimum level of profit,
occupancy, etc.)
• Loans at low rates of interest
• Provision of land freehold at nominal or little cost or at
low rents
 Continuation of Examples of Incentives

• Free and unrestricted repatriation of all or part of

invested capital profits, dividends and interest subject to
tax provisions
• Guarantees against nationalization or appropriation
 Before Implementing the Incentive Strategy
• Destination should:
1) Examine the performance of the schemes of other countries
in the light of their resources and development of objectives;
2) Research the actual needs of investors.
3) Design codes of investment concessions related to specific
development objectives with precise requirements of
investors;
4) Establish targets of achievements and periodically monitor
and assess the level of realization of such targets
 Foreign Exchange
• Most countries placed restrictions on spending in order to
maximize foreign exchange earnings. The
implementation of limiting tourist on bringing in and
taking out their own currency to ensure that foreign
currency is used to pay bills in the host region.
• Tourist may be required to pay hotel bills in foreign
currency
• Some visitors may be required to show they have enough
money for their stay before they are permitted to enter
the country
Negative Economic Aspects of Tourism and Hospitality

• High inflation and land speculation destination

• High leakages from economies of developing
countries
• Low returns on investments because of seasonal
fluctuations in demand
• Overdependence on tourism and hospitality
 Impact Control Measures as suggested by Edward Inskeep (1991)
• Develop tourism and hospitality gradually
• Maintain a scale of tourism and hospitality development that is appropriate for the local as
well as national environment
• Involve residents and their spokesmen in planning and decision-making
• Apply the concepts of tourism development zones
• Make certain that residents have easy access to tourist attractions, facilities and services
including reduced admission fee if necessary
• Provide incentives to local ownership, management, and operations of hotels and other
tourist facilities and services
• Develop strong linkages between tourism and hospitality and other economic activities to
reduce leakage of foreign exchange
• Plan,develop and organize tourism and hospitality
• Train local people to work effectively in all levels of tourism and hospitality