THE ROLE OF TOURISM

AND HOSPITALITY IN
ECONOMIC
DEVELOPMENT

ECONOMICS IS THE
BRANCH OF
KNOWLEDGE
CONCERNED WITH
THE PRODUCTION,
CONSUMPTION,
AND TRANSFER OF
WEALTH
 WHY TOURISM?
Over the decades, tourism has experienced continued growth and deepening ‎diversification to
become one of the fastest growing economic sectors in the world. ‎Modern tourism is closely
linked to development and encompasses a growing number ‎of new destinations. These
dynamics have turned tourism into a key driver for socio-‎economic progress.‎

Today, the business volume of

tourism equals or even surpasses International tourist
that of oil exports, ‎food products or arrivals (overnight visitors)
automobiles. Tourism has become grew 4% in January-March
one of the major players in
2019 compared to the
‎international commerce, and
same period last year,
represents at the same time one of
the main income ‎sources for many below the 6% average
developing countries. This growth growth of the past two
goes hand in hand with an years.
‎increasing diversification and

competition among destinations.‎

 THE ROLE OF TOURISM AND HOSPITALITY IN
THE ECONOMIC DEVELOPMENT

• There is a continuous demand for international travel in

developed countries

• As income in developed countries increases, the demand for

tourism also increases at a faster rate

• Developing countries need foreign exchange to aid their

economic development
 TOURISM VS. INTERNATIONAL TRADE

1.The tourists get the product from the host country. No need to
use freight to deliver goods.

2. International tourism is price elastic and demand elastic.

3. Foreign exchange is manipulated (usually prices are made lower

and affordable for tourists) to attract more tourists.

4. Tourism is multifaceted directly affecting several sectors in the

economy.

5. Tourism bring many non-monetary benefits and costs: social,

cultural, and environmental benefits and costs
 ECONOMIC IMPACT

• Tourism brings in revenue to host destination

• Tourist expenditures increases economic activity

in host destination

• Increases foreign exchange earnings to finance

economic growth

• Source of income for local residents

 POSITIVE ECONOMIC IMPACT OF
TOURISM & HOSPITALITY

1.Foreign exchange earnings

2. Contribution to government
revenues
3.Employment generation
4.Contribution to local economies
5.Development of private sectors
 POSITIVE ECONOMIC IMPACT OF
TOURISM

1 FOREIGN EXCHANGE EARNINGS

One of the biggest benefits from tourism is the

ability to make money through foreign exchange
earnings.
Tourism expenditures generate income to the host
economy.
The money that the country makes from tourism can
then be reinvested in the economy.

 POSITIVE ECONOMIC IMPACT OF

TOURISM

CONTRIBUTION TO GOVERNMENT REVENUES

Tourism can help to raise money that it then invested

elsewhere by the Government. There are two main ways
that this money is accumulated.

Direct contributions are generated by taxes on incomes from

tourism employment and tourism businesses and things such
as departure taxes.

Indirect contributions come from goods and services supplied

to tourists which are not directly related to the tourism
industry.
 TOURIST EXPENDITURES

Received as income by businesses such

as hotels, restaurants, car rentals, tour
operators and retail shops serving
tourists have direct effect on the
economy of the host area.
 EFFECTS OF VISITOR EXPENDITURE

A. Direct means income directly received from tourists

by businesses or service providers. Direct Contributions
are generated by taxes on incomes from tourism
employment and tourism businesses and things such as
departure taxes.

B. Indirect or secondary effects are money used to pay

for the creation and delivery of such services/products.
Indirect contributions come from goods and services
supplied to tourists which are not directly related to the
tourism industry.

 COST BENEFIT RATIO

Benefit/cost = CB Ratio
1. Determine where the tourist dollar is spent
2. Determine what percentage of each expenditure leaves the
local economy
3. Derive a “multiplier effect”, a ratio applied to income that
reflects multiple spending within an economy
4. Apply the multiplier effect to the tourist expenditures to
arrive at the total benefits of tourists expenditures in dollar
5. Derive a cost benefit ratio express as dollars received/
dollars spend
6. Apply the cost-benefit ratio to tourist expenditures to
provide estimates of income and costs of tourist business to
community both public and private sectors
DIRECT & SECONDARY EFFECT

 POSITIVE ECONOMIC IMPACT OF

TOURISM

EMPLOYMENT GENERATION

Tourism can help to raise money that it then invested elsewhere by the
Government. There are two main ways that this money is accumulated.
The rapid expansion of International Tourism has led to significant
employment creation. From hotel managers to theme park operatives to
cleaners, tourism creates many employment opportunities. Tourism
supports some 7% of the world's workers.

There are two types of employment in the tourism industry: Direct and
Indirect.
 POSITIVE ECONOMIC IMPACT OF
TOURISM

A. Direct employment includes jobs that are immediately

associated with the tourism industry. This might include hotel staff,
restaurant staff or taxi drivers, to name few.

B. Indirect employment includes jobs which are not technically

based in the tourism industry. Take a fisherman, for example. He
does not have any contact of dealings with tourists. BUT he does
sell his fish to the hotel which serves tourist. So he is indirectly
employed by the tourism industry, because without the tourists he
would not be supplying the fish to the hotel.

 POSITIVE ECONOMIC IMPACT OF

TOURISM

4 CONTRIBUTION TO LOCAL ECONOMIES

All of the money raised, whether through formal or informal means, has the
potential to contribute to the local economy.

If sustainable tourism is demonstrated, money will be directed to areas that will

benefit the local community most.

There may be pro-poor tourism initiatives (tourism which is intendend to help the
poor) or volunteer tourism projects.

The government may reinvest money towards public services and money earned
by tourism employees will be spent in the local community. This is known as the
multiplier effect.
 TOURISM MULTIPLIER

MULTIPLIER EFFECTS describes the total effect, both

indirect and direct, of an external source of income
introduced to an economy.

The multiplier effect relates to spending in one place

creating economic benefits elsewhere. Tourism can
do wonders for a destination in areas that may seem
to be completely unrelated to tourism, but which are
actually connected somewhere in the economic
system.
TOURISM MULTIPLIER This is known as the

multiplier effect which its

simplest form is how many
times money spent by a
tourist circulates through a
country's economy...
Money spent in a hotel
helps to create jobs
directly in the hotel, but it
also creates jobs indirectly
elsewhere in the economy.
 POSITIVE ECONOMIC POSITIVE
IMPACT

5 DEVELOPMENT OF PRIVATE SECTORS

The private sector has continuously developed

within the tourism industry and owning a
business within the private sector can be
extremely profitable; making this a positive
economic impact of tourism.

Leakage is the value of goods that needs to be

imported to service the needs of tourism.
 NEGATIVE ECONOMIC IMPACT

Unfortunately, the tourism industry doesn’t

always smell of roses and there are also
several negative economic impacts of
tourism.

There are many hidden costs to tourism,

which can have unfavorable economic
effects on the host community.
UNDESIRABLE ASPECT OF TOURISM

1.Leakage
2.Infrastructure Cost
3.Increase in Prices
4.Economic dependence of the local
community on tourism
5.Foreign Ownership and Management
UNDESIRABLE ASPECT OF TOURISM

1 Leakage

Economic leakage in tourism is when

money spent does not remain in the
country but ends up elsewhere;
therefore limiting the economic
benefits of tourism to the host
destination.
UNDESIRABLE ASPECT OF TOURISM

2 Infrastructure Cost

Another negative economic impact of

tourism is the cost of infrastructure.
Tourism development can cost the local
government and local taxpayers a great
deal of money.

UNDESIRABLE ASPECT OF TOURISM

3 Increase in Prices

One of the most obvious economic

impacts of tourism is that the very
presence of tourism increases prices in
the local area.

UNDESIRABLE ASPECT OF TOURISM

4 Economic dependence of the local

community on tourism

As an intrinsic factor, economic reliance on

tourism (also known as tourism dependency or
economic dependency) was generally used to
determine whether the local residents' income
or employment relies on tourism-related
activities

UNDESIRABLE ASPECT OF TOURISM

5 Foreign Ownership and

Management

As enterprise in the developed world

becomes increasingly expensive, many
businesses choose to go abroad.

Whilst this may save the business money,

it is usually not so beneficial for the
economy of the host destination.
HOW TO MAXIMIZE ECONOMIC EFFECT OF TOURISM
AND HOSPITALITY

1. Growth Theories
Balanced Theory - emphasis on supply management
Unbalanced Theory - emphasis on demand management

2. Economic Strategies
3. Important Substitution
4. Incentives
5. Foreign Exchange
GROUP 2
Degamo, Patrick
Lingamen, Alyssa
Nualda, Lemarj
Ramos, Roswell
Pabuaya, Joceah