THE ECONOMICS OF TOURISM
Tourism brings many more non-
The Role of Tourism in Economic
Development
Several developing countries have used tourism
development as an alternative to help economic
growth.
The reasons for this are:
▪ First, there is a continuous demand for
international travel in developed countries.
▪ Second, as income in developed countries
increases, the demand for tourism also
increases at a faster rate. Third, developing
countries need foreign exchange to aid their
economic development.
The Organization for Economic Cooperation
and Development (OECD) has concluded that
tourism provides a major opportunity for growth
for countries that are at the intermediate stage
of economic development and require more
foreign exchange earnings.
Tourism is an invisible export, which differs
from international trade in many ways.
1. In tourism, the consumer collects the
product from the exporting country,
thereby eliminating the freight costs for
the exporter, except in cases in which the
airline used are those of the tourist
receiving country.
2. The demand for pleasure travel is largely
dependent on non-economic factors,
such as local disturbances, political
unrest, and changes in the fashionability
of resorts/countries created mostly by
media coverage. At the same time,
international tourism is both price elastic
and income elastic. This means that
changes in price and income will also
change the demand for pleasure travel.
3. By using specific fiscal measures, the
exporting or tourist receiving country can
manipulate exchange rates so that those
for tourists are higher or lower (normally
the latter is implemented in order to
attract large number of tourist) than those
in other foreign trade markets. Also,
tourist are allowed to buy in domestic
markets at the same prices as the local
residents (the exception are the duty free
tourist shops operated in many
Caribbean islands and elsewhere).
4. Tourism is a multifaceted industry that
directly affects several sectors in the
economy, such as hotels, shops,
restaurants, local transport firms,
entertainment establishments, handicraft
procedures, and indirectly affects many
others, such as equipment
manufacturers and utilities.
5.
monetary benefits and costs than other
export industries, such as social, cultural
and environmental benefits, and costs.
Economic Impact
When travelers outside the destination area
spend on goods and services within the
destination, tourism acts as an export industry
by bringing in revenues from outside sources.
Tourist expenditures also increase the level of
economic activity in the host area directly. Many
countries have utilized tourism as a means to
increase foreign exchange earnings to produce
investment necessary to finance economic
growth.
Tourism’s economic impact on a destination
area can be immense since it provides a source
of income, employment, and foreign exchange.
Direct and Secondary Effect
 In order to measure the economic impact
on tourism on the destination area, it is
important to know the direct and
secondary effects of visitor expenditures
on the economy of the area. Tourist
expenditures received as income by
business such as hotels, restaurants, car
rentals, tour operators, and retail shops
serving tourists have a direct effect on
the economy of the host area. The term
direct means that the income is
received directly. Indirect or
secondary effects mean that the
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 tourist.
Tourism Multiplier
The term multiplier is used to describe the total
effect, both direct and secondary, of an external
sources of income introduces into the economy.
Tourism multiplier or multiplier effect is used to
estimate the direct and secondary effects of
tourist expenditures on the economy of the
country.

Cost-Benefit Ratio
Those concerned with developing the
tourism industry, whether a government or a
private individual, would like to know the extent
of potential benefit ratio. To arrive at these ratio,
the following procedures are used:
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 reflect multiple spending within an
economy;
4. Apply the multiplier effect to the tourist
expenditures to arrive at the total benefits of
tourist expenditures in dollars;
5. Derive a cost-benefit ratio expressed as dollar
received/dollar spent; and
6. Apply the cost-benefit ratio to tourist
expenditures to provide estimates of income
and costs of tourist business to a community, for
both the private and public sectors.
Undesirable Economic Aspects of Tourism
How to Maximize the Economic Effect of
Tourism
A. Growth Theories
Some economic growth theories have been
proposed to maximize the economic effect of
tourism within a destination area. These are the
theory of balanced growth and the theory of
unbalanced growth.
B. Economic Strategies
The key to maximizing the economic effects of
tourism is to maximize the amount of revenue
and jobs developed within the region. To attain
this objective, some economic strategies have
been adopted, such as import substitution,
incentives, and foreign exchange.
C. Important Substitution
It imposes quotas or tariffs on the importation of
goods, which can be developed locally.
The role of tourism in economic
development
1. Continuous demand for international travel
2. Income in developed countries increases
Peak season- march - May, December holiday
(PRICE ELASTIC)
Lean season- January, February, June-Oct.
(PRICE ELASTIC)
Inflation
Price Discrimination
-Sr. discount
-Student Discount
-Pwd
Direct effect- means that the income is
received by the tourist
Secondary effect- means that the money paid
by tourist to businesses are in turn
How maximized the economic effect of Tourism

Some undesirable economic aspects of tourism A. Growth Theories

are higher prices and economic instability. B. Economic Strategies
Because of additional demand and/or increased
imports, tourist purchases may result in higher C. Important substitution
prices in a destination area. This would mean D. Incentives
that local residents would also have to pay more
for products and services. E. Foreign exchange

Since pleasure travel is a discretionary item, it is THE TOURISM AND HOSPITALITY

subject to changes in prices and income. These NETWORK AND SUPPLY COMPONENTS
fluctuations may result in economic instability. Tourism and Hospitality Components
The travel industry a tourism hospitality network,
which includes both the public and private
sectors.
Gee, Choy, and Makes (1997) define the travel
industry as' "the composite of organizations,
organizations, both private private and public,
public, that are involved in the development,
production, and marketing of products and
services to serve the needs of the travellers."
Tourism and Hospitality Components
Direct providers include businesses that are
associated with traveller. This businesses
provide services, activities, and products that
are consumed and/or purchased directly by
travellers. They present the sectors of the
industry that are visible to the travellers.
Tourism
Support service lend support include
specialized services to direct providers. Support
services provide goods and services for both the
travellers and for organizations that sell goods
and services directly but not exclusively to
tourists.
Tourism developmental organization deal with
tourism and hospitality development, which tend
to be more complex and broader in scope than
the production of daily travel services. The
decisions and results of tourism and hospitality
development are more long-term in a nature
than the first two categories which deal more
with operators.
TOURISM AND HOSPITALITY SUPPLY
COMPONENTS
1. NATURAL RESOURCES- include elements
in an area for the use and enjoyment of
visitors such as climate, landforms, terrain,
flora, fauna, and bodies of water, beaches,
natural beauty, and water supply for drinking,
sanitation, and similar uses.
1. NATURAL RESOURCES- the natural
resources of a destination area provide an
excellent asset to sell to tourists. The physical
characteristics of an area can be generalized as
natural scenery, climate, and environment.
The natural scenery is a combination of the
general topography, flora and fauna, proximity
to lakes, rivers, seas, islands and islets, hot and
mineral water springs, caverns, waterfalls, and
the like.
The greater the variety and uniqueness of the
scenery, the more appealing it is. The appeal
can be increased if the area has a "comfortable"
climate. A comfortable cold climate is
determined by the wind-chill factor-a term used
to express how temperature feels to the
exposed skin.
2. INFRASTRUCTURE- consists of all
underground and surface developmental
construction such as water supply systems,
sewage disposal systems, gas lines, electrical
and communications systems, drainage
systems, and other constructed facilities such
as highways, airports, railroads, roads, drives,
parking lots, parks, night lighting, marinas and
dock facilities, bus and train station facilities,
and similar tourist service installations;
1. WATER- sufficient quantity of pure water is
essential. A typical resort requires 350 to 400
gallons of water per room per day.
2. POWER- The important things to consider
are that adequate supply of power is available
to meet peak load requirement.
3. COMMUNICATION
4. SEWAGE/DRAINAGE- sewer demand is
often placed at 90% of domestic water demand.
5. HEALTHCARE
6. STREETS/HIGHWAYS- the availability of
first-class roads adds greatly to the accessibility
of a region.
7. TRANSPORTATION TERMINAL
PROBLEMS IN TERMINAL FACILITIES AND
GROUND TRANSPORTATION
A.GENERAL- there is an almost complete lack
of coordination and consistency among the
three modes of air, rail, and bus.
B.AIR- long walks are required in many
terminals.
C.RAIL- parking is inconvenient and inadequate
near larger terminals; inadequate cleaning
procedures lead to 12/31 crowded and
unsanitary waiting rooms and restrooms;
security to prevent thefts is lacking;
D. BUS- Terminals are dirty and crowded;
inadequate cleaning procedures; boarding
gates lack a system of orderly procedures
8. SECURITY- while on vacation, tourists are in
an unfamiliar environment. Because of this, the
need for assurance regarding their safety is
important. The image gained of the destination
may be distorted. In addition, the costs of
medical care are so expensive that concern
about health in foreign countries may generate
additional fears. Insecurities about food, water,
or police protection may prevent visitors from
visiting. It is necessary that the basic need for
security and safety be considered and assumed
to make the potential tourist feel secure before
and during the vacation.
TOURISM AND HOSPITALITY SUPPLY
COMPONENTS
3. SUPERSTRUCTURE
Is the Above Ground Facility Services
ACCOMMODATION
While away from home, the tourist needs to eat
and sleep. Sleeping accommodations range
from hotels of international standards and
condominiums to campgrounds and the homes
of relatives and friends.
For a tourist region to succeed, a sufficient
quantity of accommodations of the right quality
should be provided for the needs of the tourists.
The demand for accommodations varies
according to the price the guests are willing to
pay, services required, and similar
considerations.
TYPES OF ACCOMMODATION
HOTELS- provide accommodation, meals, and
refreshments
CONDOMINIUM- is an apartment owned by an
individual but the management and services,
are handled by an independent company.
MOTELS- provide bedrooms, bath, and parking
to motorists
INNS- lodging establishments catering to
transients which do not meet the minimum
requirement of an economy hotel;
APARTMENTS- hotels (apparelled), buildings,
or edifices containing several independent and
furnished or semi furnished apartments that are
regularly leased to tourists and travellers for
dwelling, on a more or less long-term basis and
offering basic services to its tenants similar to
hotel
PARADORES- old convents, monasteries,
castle, or fortresses converted into hotels by the
government and operated by a national tourism
office.
PENSIONS- private or family operated tourist
accommodations similar to boarding houses or
guesthouses.
BED-AND-BREAKFAST- provide a room, bath,
and a hearty breakfast to tourists and/or
travellers.
HOSTELS- provide minimal amenities such as
a bunk bed and a commonly shared toilet and
bathroom.
CAMPGROUNDS- appeal mostly to families
who travel in recreational vehicles (RVS);
HEALTH SPAS- hotels and resorts which cater
to individuals who go to spas or mineral springs
for weight reduction or medical treatment.
PRIVATE HOMES- provide lodging to tourist
when accommodations are not available during
peak periods.
HOTEL CLASSIFICATIONS
LOCATION- city centre, suburban, airport,
highway, and resorts
TYPE OF GUEST- commercial, convention,
and resort
PRICE - economy or budget, first-class, or
deluxe. Standard or midscale,
STAR RATING SYSTEM- assigned according
to the quality of restaurants, rooms, amenities,
and service.
FOOD AND BEVERAGE- More of the tourist
dollar is spent on food and beverage than on
any other service. Countries which are highest
in per capita eating place and sales are also top
tourist countries.
The type of food service provided will be related
to the needs of the tourists. Many destination
areas have successfully developed menus
which are indigenous το the area to promote
local economy food.
RESTAURANTS- Restaurants are
establishments offering refreshments and/or
meals to the public.
TOURISM AND HOSPITALITY SUPPLY
COMPONENTS
4. TRANSPORTATION AND
TRANSPORTATION EQUIPMENT
Transportation is of paramount importance in
developing tourism and hospitality. Tourists
need easy access to various forms of
transportation.
Thus, the amount of time from major population
centres via each mode of transportation is
important it is important to have convenient
access and quality service.
The cost of reaching the destination and staying
there must also be considered. This should
include special needs, such as road tolls,
gasoline stations, repairs, parking, car rentals
and charter, and scheduled bus services.
LAND TRAVEL
TAXI AND LIMOUSINE SERVICE- adequate
taxi and limousine service is important in a
tourist area. The taxi driver should always be
courteous, helpful and trained in foreign
language
BUS SERVICE- tour buses should have large
windows, comfortable seats, air conditioning
unit, and restroom facilities. Persons assigned
to the buses should be selected for their
appropriate temperament, courtesy, and
hospitality.
RAIL SERVICES- the majority of seasoned
travellers prefer to travel by train because of its
safety record and the convenience and
satisfaction of viewing the scenery from a
comfortable air-conditioned car.
AIR TRAVEL- porter service is important at air
terminals. Airport must be comfortable and
provide sufficient air-conditioning or heating
SEA TRAVEL- sea travel is a major factor in
tourism and hospitality. Cruise ships have
developed into "floating resorts" or "floaters."
because of this idea, the demand for sea travel
has increased and cruises became popular in
recent years.
5. HOSPITALITY RESOURCES
INCLUDE THE CULTURAL WEALTH OF AN
AREA WHICH MAKES
Possible the Successful Hosting Of Tourists
Hospitality Resources Refer To The General
Feeling Of Being Welcomed That The Visitors
Receive While Visiting A Destination Area. It Is
The Way That Tourist Services Are Delivered
By Service Providers, As Well As The General
Feeling Of Warmth From The Local Population.
Hospitality Resources Can Be Improved By
Training Tourism and Hospitality Personnel to
Be Hospitable
HOSPITALITY TRAINING
Hospitality Training Aims To Motivate Service
Providers To Be Hospitable In Dealing With
Tourists, It Is Assumed That Providing More
Hospitable Services Will Result To A More
Satisfied Tourist Who Will Be Inclined To Return
And Advertise To Other Potential Tourists
Through Word Of Mouth,
To Enable Service Providers To Render
Hospitable Services, It Is Necessary To Change
Their Present Behaviour. This Change Of
Behaviour Is Brought About By A Change In
Attitude And An Increase In The Level Of
Knowledge.
THE THREE ASPECTS OF ATTITUDES
Attitude toward Self
Attitude toward Others
Attitude toward the Tourism and Hospitality
Industry
TOURISM AND HOSPITALITY
ORGANIZATIONS
Since tourism is a diverse industry made up of
many different segments, there is a need to
interrelate and share information. This has led
to the establishment of several public and
private organizations at the international,
regional national and even local levels
INTERNATIONAL
1. UNWTO- (United nations World Tourism
Organization)
 WTO is the chief organization in tourism. It is
an intergovernmental technical body, which
deals withal aspects of tourism.
 It began its legal existence in January 2,
1975.
 It was formerly called Union of Official Travel
Organization (IUOTO).
 Has 156 member countries and
headquarters is located in Madrid, Spain
 The Secretariat is led by Secretary-General
Zurab Pololikashvili
 Market research and statistics is its most
significant contribution.
 Provides an international forum where
tourism officials can discuss problems and
exchange their ideas.
 Only organization whose activities covers all
sectors of tourism on aworld-wide basis.
MEMBERSHIP:
1. Full member- Sovereign states
2. Associate member- territories or groups of
territories not responsible for their external
relations, but whose membership is approved
by the state which assumes responsibility for
their external relations.
3. Affiliate members- international bodies, both
governmental & non-governmental concerned
with specialized interest in tourism, as well as
commercial and non-commercial bodies.
THREE LEGAL FUNCTIONING BODIES
1. General Assembly
2. Executive Council
3. Secretariat
The primary aim of the WTO is to promote and
develop tourism, to contribute to the economic
development, international understanding,
peace, prosperity and universal respect for
human rights and fundamental freedoms for all
w/o the distinction as to race, sex, language or
religion.
2. ICAO- (International Civil Aviation
Organization)
 An organization of about 134 governments
established for the purpose of promoting civil
aviation on a world-wide scale.
 Established on 1944
 Adapts international standards and to
recommend practices for regulating air
navigations. Encourage the improvement of
the art of aircraft design and operation for
peaceful purposes.
3. IATA- (International air Transport
association)
 Established in 1945 in Havana
 Composed of airline operators attached
to the national delegations of the ICAO
conference in ICAO.
 Membership includes more than 112
scheduled airlines
 Aims to promote safe, regular and
economical air transport, faster air
commerce and study problems
connected with the industry.
 Involves standardizing of tickets, prices,
airline air way bills, baggage checks and
other documents
4. WTTC- (World Travel &Tourism Council)
 The only global forum whose members are
the top decision makers in the travel and
tourism industry.
 The only body representing the private
sector in all parts of the industry worldwide.
 WTTC campaigns on three strategic
priorities which it has identified as impeding
the successful development of Travel &
Tourism now and in the future – Freedom to
Travel; Policies for Growth; and Tourism for
Tomorrow.
REGIONAL
1. OECD- (ORGANIZATION Of ECONOMIC
COOPERATION And DEVELOPMENT)
 Designed to achieve the highest sustainable
economic growth and employment and raise
standards of living of member countries,
while
Maintaining financial stability and contributing to
the development of the world economy.
2. PATA- (Pacific Asia Travel association)
 Develops, promotes and facilitates travel in
the Pacific Areas
 Early leader in recognizing the need for
environmental ethics
 Initiated the PATA Code for Environmental
Tourism
 Environmentally responsible tourism means
tourism which recognizes the necessity of
ensuring a sustainable future.
3. CTA- (Caribbean Tourism
Association/Organization)
 Encourages and Assists in the development
of tourism throughout the Caribbean Area
4. APEC- (Asia Pacific Economic
Cooperation)
 Aims to establish coordination of national
economies for the benefit of countries in the
Asia-Pacific region
 The US Travel & Tourism Administration is
the 1st country chair of the Tourism Working
group.
NATIONALORGANIZATIONS
The government plays an important role in
formulating policy to guide tourism development
and promotion in line with other national
economic and social objectives.
Government can play a decisive role in the
following areas;
1. Planning – attracts foreign investment and
funding infrastructure devt.
2. Employment and Training – determines
manpower needs; developing tourism training
programs.
3. Coordinating Public & Private Sectors –
determines roles in mixed economics.
NATIONAL TOURISM OFFICE (NTO)
• Primary government bodies that are
responsible for the development of the tourism
industry in a particular country.
• Institutions that regulate, develop tourism and
promote it within and outside destination.
NATIONALORGANIZATIONS IN TOURISM
1. DOT- ( Department Of Tourism
Philippines)
 Primary government agency charged with
the responsibility to formulate tourism
policies, plans and projects for the
development of tourism as an engine of
socioeconomic and cultural growth
 Spread the benefits of tourism to a wider  Develop and operate cultural and
segments of the population. educational programs
 Ensure the safe, convenient and enjoyable
stay and travel of the foreign and local 6. TIEZA- (Tourism Infrastructure and
tourists in the country. Enterprise zone Authority)
 The Current Secretary Of Department Of  Formerly known as PTA or Philippine
Tourism- Maria Esperanza Christina Tourism Authority.
Garcia  Develop, manage and supervise tourism
infrastructure projects in the country; the
2. TIEZA- (Tourism Infrastructure and primary objective of encouraging
Enterprise Zone Authority) investments in TEZ's (Tourism Enterprise
 The TIEZA shall be attached to the Zones).
Department of Tourism under the  Principal agency responsible for the timely
supervision of the Secretary alongside with collection of travel taxes.
the Tourism Promotions Board (formerly
Professional Tourism and Hospitality
PCVC), Duty-Free Phils. Corp., Intramuros
Organization
Administration, Nayong Pilipino Foundation,
National Parks Development Committee, Several professional tourism organizations
Phil. Commission on Sports Scuba Diving have been established to bridge the gap
and the Phil. Retirement Authority. between government and industry. By working
 To designate, regulate and supervise the together, they promote a very favourable
Tourism Enterprise Zones (TEZs), tourism climate.
particularly of cultural, economic and
Professional Tourism and Hospitality
environmental sustainable developments of
Organization in the Philippines
TEZs to encourage investments.
 To develop, manage and supervise tourism • Philippine Travel Agencies Association
infrastructure projects in the country. (PTAA)
 Ensure strict compliance of the TEZ
• The Hotel and Restaurant Association of the
operator/administrator with the approved
Philippines (HRAP)
development plan.
 TIEZA has also the power to impose • Union of Filipino Tourism Educators (UFTE)
penalties for failure or refusal of the tourism
• Council of Hotel and Restaurant Educator of
enterprises to comply with said plan.
the Philippines (COHREP)
 TIEZA , Chief Operating Officer (COO)
• The Association of Administrators in
3. TPB- (Tourism Promotions board) Hospitality, Hotel and Restaurant Management
 Formerly known as PCVC or Philippine Educational Institution Incorporated (AAHRMEI)
Convention and Visitor's Corporation
• The Women in Travel, Philippine Chapter
 It is an attached agency of DOT which is
primarily responsible for implementing an • Philippine Association of
integrated domestic and international Conventions/Exhibitions, Organization and
promotions and marketing program for the Suppliers, Inc. (PACEOS)
Philippines as a tourism destination as well
• Network of Independent Travel Agencies
as for tourism investments
(NAITAS)
4. IA -( Intramuros administration) • Movement of Incentive Travel Executives
 Sponsors, conducts and supports festivals (MITE)
and cultural activities in Intramuros
• Philippine Association of Accredited Tourist
 Give grants, contributions and donations for
the restoration, repair and maintenance of Guide Lecturers Inc (PAATGLI)
historic structures of Intramuros.
• The Philippine Tour Operators Association
 Its main functions are to restore Intramuros
(PHILTOA)
and promote it as a tourist destination
• Tourism Educators and Movers Philippines,
5. NPDC- (National Parks Development Inc. (TEAM PHILIPPINES)
Committee)
 Undertake development of new parks
 Upgrade and maintain park facilities
 Facilitate private sector participation in
Appropriate aspect of parks development and
maintenance