ADHM 141 Lecture Notes - Lecture 2: Import Substitution Industrialization
22 Jun 2018
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The Role of Tourism in Economic Development
The increasing fascination with tourism worldwide in the past 40 years
has been motivated largely by its potential economic benefits for
communities of all sizes.
○
Tourism development is seen as an attractive policy alternative to
promote economic growth and diversification.
○
Tourism is a powerful economic force providing employment, foreign
exchange, tax revenue, etc
○
The economic impact of tourism spending is a function of the numbers of
domestic and international visitors and their expenditures
○
New economic generator replacing declining activity in agriculture and
manufacturing
○
•
The Contributions and Negative Effects of Tourism
Positive Economic Impacts of Tourism
Foreign exchange earnings
§
Contribution to government revenues
§
Employment generation
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Stimulation of infrastructure development
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Contribution to local economies
§
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Negative Economic Impacts of Tourism
Leakage
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Enclave tourism (e.g. entire stay at the same cruise ship or resort)
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Infrastructure costs
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Increase in prices
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Seasonal character of jobs
§
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Increasing Foreign Exchange Earnings
"LEAKAGE"- The value of goods and services that must be imported to
serve the needs of tourism (money you have to spend from international
products and labor)
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This money spent leaks from the destination's economy and must be
subtracted from foreign exchange earnings to determine the true impact.
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The extent to which a destination can minimize leakage will determine
the size of the foreign exchange earnings.
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Types of Leakage:
Imports to pay for goods and services preferred by international
tourists
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Importing goods and materials for infrastructure and buildings
required for tourism development
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Franchise royalties and management fees paid to foreign hotel
companies
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Commissions to travel agencies or tour operators located outside
the destination
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Profits paid to foreign owners and landlords
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Advertising, promotion, and publicity abroad
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Tourist use of credit cards and travelers checks that are drawn on
foreign banks
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Wage remittances and savings sent home by foreign workers
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Overseas training of tourism personnel
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Savings of employees of tourism and tourism-related businesses
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Cost of maintaining a national tourist office in an foreign country
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When host governments except duties or taxes for foreign-owned
companies or offer financial inducements to attract investment
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Interest paid on foreign loans
§
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Direct, Indirect, and Induced Impact
Direct Impact: Tourists' initial spending
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Indirect Impact: Re-spending (second round)
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Induced Impact: Further spending
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(the total income impact of tourism equals the sum of the direct, indiret,
and induced impact.)
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The Multiplier Example
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•
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Calculations of Multiplier example:
Given:
Direct Expenditure: $500
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Indirect Expenditure: $300
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Induced Expenditure: $150
§
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The Multiplier: ($500 + $300 +$150)/$500 = $1.9
If its lower than one, the location is focusing too much on tourism.
Location cannot survive without income form location
§
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MEASURE OF ECONOMIC IMPACTS
The Simplest Formula:
Economic impact of tourism= □
(# of tourists)x(average spending)x(multiplier)
§
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Increasing Employment
Tourism is labour-intensive
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According to the World Travel and Tourism Council (WTTC), the total
contribution of Travel & Tourism to employment, including jobs indirectly
supported by the industry, is forecasted as 258,592,000 jobs (8.8% of total
employment) in 2011
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Tourism provides both direct and indirect employment:
Direct: when employees are in contact with tourists and provide the
tourist experience
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Indirect: employees of firms providing goods and services to the
direct suppliers
§
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Economic Constraints to Tourism Benefits
Economic constraints that limit the extent to which governments can
maximize the benefit from tourism are in the form of potential economic
costs that the tourism industry development can impose
For instance, money injected by tourists in a destination economy
increases the income of the region, but it also might cause
inflationary pressures, which are detrimental to the economic
welfare of residents
(e.g. land prices escalate rapidly in tourist destination)□
§
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Permitting tourism to become the subsistence industry for a country or a
region is not desirable:
Seasonality- Unemployment problems
§
Demand for tourism depends on income and tastes of foreign
tourists- beyond the control of the host region
§
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Investment Priorities:
Aggressive investment programs to develop tourism can lead to the
neglect of more fundamental investment needs of the country
(education, health, or other social services)
§
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Maximizing Positive Impacts
The Key is to maximize the foreign exchange earnings, income, and
employment within the destination area.
This means tourism development and marketing to bring in more
money from visitors and organizing tourism to minimize the leakage
of both money and jobs.
§
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Strategies for Tourism
Encouraging import substitution
Minimizing leakage from the destination’s economy
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The industries showing most promise can be supported through
specific subsidies, grants, or loans.
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Quotas or tariffs can be placed on the importation of goods that can
be developed locally.
§
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Implementing incentive programs
The use of local architecture, design, and materials can be
encouraged through incentive programs (e.g. tax reductions, low-
interest loans, loan guarantees)
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Dealing with multinational tourism companies
Problems arises for the destination countries
have no financial investment in the hotels. □
allow limited opportunity for local employees to reach
positions of responsibility.
□
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A foreign-owned hotel can engage in policies that run counter to
the national tourism plan.
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Maximization of benefits comes from direct financial involvement
of the multinational business in the development of local
managerial and supervisory talent.
§
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ECONOMIC IMPACTS OF TOURISM CH 2
Tuesday, February 28, 2017
12:32 PM
Document Summary
The increasing fascination with tourism worldwide in the past 40 years has been motivated largely by its potential economic benefits for communities of all sizes. Tourism development is seen as an attractive policy alternative to promote economic growth and diversification. Tourism is a powerful economic force providing employment, foreign exchange, tax revenue, etc. The economic impact of tourism spending is a function of the numbers of domestic and international visitors and their expenditures. New economic generator replacing declining activity in agriculture and manufacturing. Enclave tourism (e. g. entire stay at the same cruise ship or resort) leakage- the value of goods and services that must be imported to serve the needs of tourism (money you have to spend from international products and labor) This money spent leaks from the destination"s economy and must be subtracted from foreign exchange earnings to determine the true impact.
