TOURISM’S ECONOMIC IMPACT 1

Tourism is a powerful economic force providing employment, foreign exchange,

income, and tax revenue. The generators of economic impact for a city, a state, a province, a
country, or a destination area are: visitors, their expenditures, and the multiplier effect. The
economic impact of tourism spending is a function of the numbers of domestic and
international visitors and their expenditures. Because of the economic importance of tourism,
the United Nations World Tourism Organization (UNWTO) maintains statistics by region and
country on tourism arrivals (visitors) and both tourism expenditures (what a country spends)
and receipts (what a country receives from visitor expenditures). Tourism destinations are
becoming increasingly competitive as more and more destinations look at tourism to become
the new economic generator replacing declining activity in agriculture, mining and
manufacturing.

The economic impact of tourism was

dramatically demonstrated by the events of
September 11, 2001. People cut back on their
travel; economic forecasts were put on hold;
airline, lodging, tour operators, and travel
agent revenue declined; and widespread layoffs
occurred throughout the industry. However,
travel recovered. By this, we realized the real
economic impact of tourism.

On the other hand, this chapter

explains why these resulting effects of tourist
9/11 ATTACKS (http://www.medindia.net/news/Still-
Suffering-the-Effects-of-911-Dust-and-Fumes-64883-1.htm) spending vary greatly and what brings about a
large measure of benefits or possible detriments to a community. The main economic
phenomena described in here are various multipliers, balance of payments effects, investments,
tax consideration, employment, economic impact generators, travel expenditures, dependence
on tourism, price and income elasticity as related to buying travel experiences, and
optimization. This chapter also discusses a new method of measuring tourism economic impact
called Tourism Satellite Accounting.

EMPLOYMENT

“Tourism means job” is an old slogan disseminated by the Department of

Tourism nationwide. It aims to inform people that it is a labor-intensive industry that creates
jobs at all levels. As a matter of fact, tourism provides both direct and indirect employment.
 TOURISM’S ECONOMIC IMPACT 2

Directly-related jobs refer to jobs which require tourism-specific skills and

knowledge. Firms such as hotels, restaurants, airlines, cruise lines, and resorts provide direct
employment because their employees are in contact with tourists and provide the tourist
experience. Jobs in this kind of employment includes flight attendants, ground crews,
reservations, ticketing officers, front office personnel, banquet and sales, housekeeping, etc.

Employees of firms providing goods and services to the direct employment, such
as aircraft manufacturers, construction firms, and restaurant suppliers, create indirect
employment. Indirectly-related jobs require certain specializations.

According to World Travel and Tourism Council, Travel & Tourism in the
Philippines generated 778,000 jobs directly in 2011 which is 2.1% of total employment in the
country. This includes employment by hotels, travel agents, airlines and other passenger
transportation services (excluding commuter services). It also includes, for example, the
activities of the restaurant and leisure industries directly supported by tourists. By 2022, Travel
& Tourism will account for 1,135,000 jobs directly, an increase of 3.3% over the next years.

Former Sec. Richard

Gordon authored the Tourism Act
of 2008 which aims to create
thousands of job opportunities for
Filipinos all over the country. He
added that if we focus on tourism,
it will generate jobs and
opportunities for all.
Furthermore, he also said that
tourism, being the largest
industry in the world, is the key to lifting our people out of their poverty.

OPTIMIZATION
Optimization is an act, process, or methodology of making something as fully
perfect, functional, or effective as possible. Tourism industry needed this to improve the needs
of the visitors where they can enjoy services and give the best where they pay for. Economics is
concerned with the attainment of an optimum (the amount or degree of something that is most
favorable to some end) return from the use of scarce resources. Economic agents seek to
allocate the limited supply of tourism resources (both physical and financial) as they seek to
meet the demands of tourists. The demands are the result of their physical/ functional needs
 TOURISM’S ECONOMIC IMPACT 3

and their psychological wants. The problem that economics attempt to solve is how to achieve
an economical optimal allocation of scarce tourism resources when facing the constantly
shifting demand for these resources. Scarce tourism resources are the fundamental economic
problem of having seemingly unlimited human wants and needs in a world of limited resources.
It states that society has insufficient productive resources to fulfill all human wants and needs.

*Goals*
There are at least three major goals that can be identified in tourism. These goals
create happy clientele, which causes them to return, to spend money, and to make everyone in
the industry and the region satisfied. These are:

1. Maximize the amount of psychological experience for tourists.

2. Maximize profits for firms providing goods and services to tourists.

3. Maximize the direct (primary) and indirect (secondary) benefits of tourist expenditures
on a community region.

*Constraints*
These are the factors that place obstacles in the way of goal attainment. These
are the problems or things that get in the way when you are attaining your customer's desire.
Tourism, being extremely broad and diverse, must deal with a large number of constraints.

• Demand

Every firm providing goods and services to tourists is constrained by the demand
functions of its customers such as price, wealth and income.

• Supply of Attractive Resources

This is possibly one of the most important constraints faced by the industry. It
refers to the limited amount of resources available for tourist enjoyment. Tourists will always
seek the best attractions and the problem is that there are some better attractions than yours.

• Technical and Environmental Constraints

There are always technical and environmental constraints in a particular place.

For example, the numbers of fish and numbers of fishermen, number of people who can walk in
a given area without causing unacceptable damage, number of campsites possible in a given
area without harming the environment, impact on lions' behavior of tourists observing them
from a car, and many more others that is related to environment.
 TOURISM’S ECONOMIC IMPACT 4

• Time Constraints

The visitor of a certain place doesn't always have much time in visiting. They
have always limited time on staying and their attempt is to do the things they wanted to do in a
period of time. The amount of vacation time limits what the vacationer can do and that
influences the impact of tourist expenditures on the local economy.

• Indivisibilities

"All of something or with nothing" is basically the motto on this constraint. They
deal with things that are needed to be done even if it’s not necessary for the business. For
example, it is not possible to fly half an airplane even though the seats are only half filled. A
road has to be built all the way from one point to another.

• Legal Constraints

Laws of a particular place that is related to the government limit activities. Like,
the activities of a government tourist bureau, laws concerning environmental problems, zoning
and building codes that may influence the construction of facilities.

• Self-Imposed Constraints

The conflicts arising within a firm or among firms, government agencies, and so
on, that are seeking to develop a particular area or concept leads to self-imposed constraints.

• Lack of Knowledge

Many activities are limited because little is known about particular situations.
Businesspeople are used to living with a certain amount of uncertainty, but there are inevitable
limits to the amount they are willing to countenance. Ignorance influences governmental
operations as well.

• Limits on Supportive Resources

Amount of money, managerial talent, workers, construction materials, social

capital, and other things that are related to tourism, are not unlimited. Having a problem with
these materials limit chances to provide psychological enjoyment, take advantage of profit-
making opportunities, or develop local attractions.

ECONOMIC BENEFITS WIDELY DISTRIBUTED

 TOURISM’S ECONOMIC IMPACT 5

Tourism is characterized by the existence of a large number of very small

businesses that support and are ancillary to the industry. The receipts from tourism quickly
filter down to an extremely broad cross section of the population, so that the entire community
shares the economic benefits.

TOURISTS PAY FOR: TRAVEL COMPANIES PAY FOR:

ULTIMATE BENEFICIARIES:
lodging wages, salaries, tips & gratuities
accountants/financiers/managers
food commissions & payroll taxes
cooks/bakers
beverages food & beverage stocks
charities
entertainment music & entertainment
automobile agencies/transportation
clothing administrative expenses
clothing stores
gifts & souvenirs professional services & insurance premiums
arts and crafts producers
photography advertising & publicity
clerks/cashiers
medical attention utilities: water, electricity, rubbish removal,
etc real estate brokers & developers

jewelry purchases of goods sold

dry cleaners/laundries
tobacco materials & supplies
engineers
hairdressing repairs & maintenance
government
cosmetics transportation, licenses & taxes
landlords
internal transport rentals of premises & equipment
restaurants/resorts/night clubs
tours & sightseeing interest charges & loan repayments
architects
miscellaneous capital asset replacements
electricians/plumbers/butchers
DISTRIBUTION OF TOURISM EXPENDITURES

The table above illustrates how quickly tourism receipts seep through the
economy and the diversity of the businesses that benefit from tourism.

*International Tourism Receipts*

International tourism receipts grew to US$1.03 trillion in 2011, corresponding
to an increase in real terms of 3.8% from 2010. The World Tourism Organization reports the
 TOURISM’S ECONOMIC IMPACT 6

following countries as the top ten tourism earners for the year 2011, with the United
States by far the top earner.

RANK COUNTRY INT’L. TOURISM RECEIPTS RANK COUNTRY INT’L. TOURISM RECEIPTS

1  United States $116.3 billion 6  Germany $38.8 billion

2  Spain $59.9 billion 7  United Kingdom $35.9 billion

3  France $53.8 billion 8  Australia $31.4 billion

4  China $48.5 billion 9  India $27.8 billion

5  Italy $43.0 billion 10  Hong Kong (China) $27.2 billion

*International Tourism Expenditure*

The WTO reports the following countries as the top ten biggest spenders on
international tourism for the year 2011 showing Germany as the top spender.

INT’L. TOURISM INT’L. TOURISM

RANK COUNTRY RANK COUNTRY
EXPENDITURE EXPENDITURE

1  Germany $84.3 billion 6  Canada $33.0 billion

2  United States $79.1 billion 7  Russia $32.5 billion

3  China $72.6 billion 8  Italy $28.7 billion

4  United Kingdom $50.6 billion 9  Japan $27.2 billion

5  France $41.7 billion 10  Australia $26.9 billion

*How Much Do Tourists Spend in the Philippines?*

Based on the data collected by National Statistical Coordination Board (NCSB),
foreign tourists would typically spend approximately $84 a day, while overseas Filipinos or
"balikbayans" spend $80 a day in the Philippines. The NSCB noted foreign visitors spent most of
their money on accommodations, while overseas Filipinos used their money to go shopping

In 2010, a foreign tourist spent an average of $20 a day on accommodations, $22

for food and beverage and $23 on shopping. Average expense for entertainment was only $14,
for miscellaneous $2 and for local transport $3.

Foreign tourists have tightened their purse strings when spending in the
Philippines in the last decade. In 2000, a foreign tourist would spend an average of $120 a day
and going down to a low of $75.3 in 2008. In 2010, average daily expenditure is $84.
 TOURISM’S ECONOMIC IMPACT 7

STRUCTURAL CHANGES
Structural change implies that instead of diversifying the economic base, the
country’s tourism sector merely “cannibalizes” the other major economic sector. Diversity is the
foundation of economic stability. When one sector or industry experiences a slump, another
sector booms, reducing its impact if a depression does occur. Instead of diversifying an
economy, tourism sometimes replaces agriculture as a “subsistence” sector.

*Tourism and Agriculture*

Some countries rely on agriculture to help gain their economy but when tourism
was introduced, the agricultural base of the country decreased. The promise of much higher
wages in the tourism industry draws people away from farming. Therefore, the agricultural
output declines. The inflationary pressure on food prices is aggravated and lead to social
disturbance.

On the other hand, shifting global consumption patterns, tastes and attitudes
towards food, leisure, travel and place have opened new opportunities for rural producers in
the form of agri-tourism, ecotourism, wine, food and rural tourism and specialized niche market
agricultural production for tourism. Agriculture is one of the oldest and most basic parts of the
global economy, while tourism is one of the newest and most rapidly spreading. In the face of
current problems of climate change, rising food prices, poverty and a global financial crisis,
linkages between agriculture and tourism may provide the basis for new solutions in many
countries. A number of challenges, nevertheless, confront the realization of synergies between
tourism and agriculture.

Tourism and Agriculture examines regional specific cases at the interface

between tourism and agriculture, looking at the impacts of rural restructuring, and new
geographies of consumption and production. To meet the need for a more comprehensive
appreciation of the relationships and interactions between the tourism and agricultural
economic sectors, factors that influence the nature of these relationships; and explore avenues
for facilitating synergistic relationships between tourism and agriculture. These relationships are
examined in thirteen chapters through case studies from eastern and western Europe, Japan
and the United States and from the developing countries of the Pacific, the Caribbean and
Ghana and Mexico. Themes of diversification, economic development, and emerging new forms
of production and consumption.

*Displacement Effects*
 TOURISM’S ECONOMIC IMPACT 8

Displacement can happen when a tourism development occurs at the expense of

another industry, or when a new tourism project takes customers away from an existing
attraction or facility - rather than adding sufficient numbers of new visitors to the local tourist
destination to justify the investment. This type of situation, where tourism development simply
substitutes one form of expenditure and economic activity for another, is known as
the displacement.

DEPENDENCE ON TOURISM
Over-dependence on Tourism

Anywhere, whether it is a town or a country, is in an economically vulnerable position when it is

dependent on the health and vigor of just one industry. This also applies when tourism is the
principal industry (Mathieson & Wall, 1982). Indeed, tourism revenues may fluctuate, for more
than just seasonal reasons, beyond a destination or an attractions ability to predict and manage
such a situation.

*Cons of Depending on Tourism*

1. Seasonality – jobs involved in the industry of tourism are seasonal and not well paid, this can
be very dangerous for countries that become very dependent on tourism as their main source
of revenue.

2. Source of demand for tourism depends largely on the income and the tastes of tourists, both
of which are beyond the control of the host region.

3. Can lead the tourism to changes overnight because of the natural disaster, terrorism,
changing consumer taste and economic recession in the source of the country.

Total dependence on a single industrial sector is

undesirable. The demand for agricultural output is also unlikely to suffer from a secular decline,
because people must eat.

PRICE ELASTICITY
Demand can be classified as ELASTIC UNITARY INELASTICITY
DEMAND ELASTICITY DEMAND
inelastic or elastic on the basis of the
relative responsiveness of quantity (|PED| > 1) (|PED| = 1) (|PED| < 1)
demanded to changes in price. PRICE TR falls No Change TR rises
RISES

PRICE TR rises No Change TR falls

FALLS
 TOURISM’S ECONOMIC IMPACT 9

Specifically, price elasticity of demand (PED) may be defined as the percentage change
in demand resulting from a given percentage change in price. It can be calculated by the
formula PED = % change in quantity RELATIONSHIPS BETWEEN PRICE ELASTICITY
AND TOTAL REVENUE (TR)
demanded / % change in price

Going back to the classification of demand, it is said to be elastic if the demand

changes a lot when the price changes and when the PED is less than 1. The demand is inelastic
if it does not respond much to change prices and its PED is greater than 1. When the price
elasticity of demand is one, we say that the demand has unit elasticity.

We believe that tourism products are mainly price elastic, which means, as price
rises, the quantity demanded tends to drop and as price falls, the quantity demanded tends to
rise. A great example would be when low-cost airlines in the country began offering cheaper
airfares, the number of air travelers increased to record-high levels.

INCOME ELASTICITY OF DEMAND

As income rises, more travel is demanded at any given price. Thus, the
relationship between income and demand is positive. The responsiveness of demand to
changes in income is called income elasticity of demand. It is defined as the percentage change
in quantity demanded in response to a given percentage change in income, price remaining
unchanged. Or simply, Income Elasticity of Demand = % change in quantity demanded / %
change in income

In general, we believe that tourism is income elastic. This means that as market’s
income rises, and tourism prices do not rise proportionally, the demand for travel to that
particular area will increase.

TOURISM SATELLITE ACCOUNT (TSA)

To ensure the accuracy and reliability of the measures of tourism’s economic
impact, the United Nations World Tourism Organization in collaboration with the World Travel
and Tourism Council have undertaken to develop a tourism accounting system that is not only
rigorous, but consistent with the national accounts of every country. This system has been
named Tourism Satellite Account.

It measures the size of economic sectors that are not defined as industries in
national accounts; the goods and services according to international standards of concepts,
 TOURISM’S ECONOMIC IMPACT 10

classifications, and definitions that will allow for valid comparisons with other industries and
eventually from country to country and between groups of countries; tourism’s contribution to
gross domestic product (GDP); number of jobs created by tourism in an economy; amount of
tourism investment; tax revenues generated by tourism industries; tourism consumption; and
tourism’s impact on a nation’s balance of payments

It aims to increase and improve knowledge of tourism’s importance relative to

overall economic activity in a given country and to balance measures of tourism demand versus
supply.

The data used in the calculation of a TSA in a country may come from diverse
number of surveys produced by statistical commissions in a country that record information on
tourism consumption of residents travelling in and outside of the country and nonresidents
travelling to that country.

On the other hand, the Philippine Tourism Satellite Account (PTSA) is one of the
satellite accounts developed by the National Statistical Coordination Board (NSCB) to measure
the contribution of tourism to the Philippine economy.
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REFERENCES:

http://www.abs-cbnnews.com/business/06/07/12/how-much-do-tourists-spend-ph

http://www.journal.au.edu/abac_journal/may99/article3_f.html

http://www.senate.gov.ph/press_release/2008/0520_gordon2.asp

http://www.wttc.org/research/economic-impact-research/

http://www.wttc.org/site_media/uploads/downloads/philippines2012.pdf