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Summary Chapter 7 The economic impact of tourism
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Summary of 'Tourism principles and practice', John Fletcher, sixth edition, Chapter 7 The economic impact of tourism.
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Chapter 7The economic impact of tourism
Introduction
This chapter examines the economic significance of tourism as well as the economic impacts
associated with the industry.
Overview
The economic benefits of tourism provide the main driving force for tourism development. Tourism is
a business and what we are doing when we sell tourists our services is exchanging some of our
environment and culture in return for foreign exchange earnings (when it is international tourism),
tax revenue, income and jobs. Although tourism is based on services, tourist expenditure is as ‘real’
as any other form of consumption and international tourist expenditure can be seen as an invisible
export by the host country. Domestic tourism is, simultaneously, an ‘import’ substitute if it chosen
instead of residents taking trips abroad and an ‘export’ from the hosting region to other regions
within the national economy. To the tourist-generating countries, tourism spending is an invisible
import when their residents spend money created in their home economy and spend it on services
abroad. Domestic tourism is also one of the greatest forms of income redistribution, where income
earned in urban areas is re-spent in coastal or sparsely populated countryside areas.
Although domestic tourism is many times greater, in terms of volume and spending, than
international tourism the latter is often easier to measure because it frequently involves custom/
immigration procedures and currency exchange.
During the past half century many economies have experienced growth in their service sectors, even
when the more traditional agricultural and manufacturing sectors have been subject to stagnation or
decline. The global importance of the service sectors can be identified by the introduction of the
General Agreement on Trade in Services (GATS). Tourism is the largest service-based industry and, as
such, has been partly responsible for this service sector growth. In developing countries tourism is
often responsible for around 40– 50% of GDP , while in the more industrialised economies it is
responsible for around 15% (Spain), 10% (the United Kingdom and Australia) and 8% (the United
States) of GDP.
The growth of the service sectors tends to come in two waves, the first occurring with the
introduction of traditional services where retail/wholesale trade, transport and public administration
start to grow in low Gross Domestic Product (GDP) per capita economies, and the second when more
advanced services, such as finance, computing and legal services take over from manufacturing to
create another period of growth in high GDP per capita countries The latter half of the 1980s saw a
growing interest in the operation and performance of service industries and their strong
intersectoral linkages perform an important role in development. From the mid-1990s, the world has
seen the service industries take responsibility for the accelerated drive towards globalisation.
The industrialised economies have suffered more from the global financial crisis than the emerging
economies as real incomes fell sharply.
The introduction of the General Agreement on Trade in Services (GATS) and its push towards the
liberalisation of international trade has been accompanied by the growth of globalisation .
Globalisation refers to the result of a collection of forces that tend to change the way that the
economic, political and cultural worlds operate. As the world becomes economically smaller, the
concept of globalisation has taken on a more central position on the stage of world politics.
To put the economic impact of tourism into context, it is useful to examine the economic significance
, of tourism for a number of countries, most notably the prime generators and/or recipients of
international tourists. The economic significance of tourism is determined not only by the level of
tourism activity that is taking place, but also by the type and nature of the economy being
considered. For instance, the economic significance of tourism activity to a developing country may
well be measured in terms of its ability to generate an inflow of foreign exchange or to provide a
means for creating greater price flexibility in its export industries, whereas, for an industrialised
economy, it may be judged by its ability to assist diversification strategies and combat regional
imbalances.
The significance of tourism may be assessed in terms of the proportion of total international visitors
to individual countries, for here one can assess the relative importance of single countries in
determining the volume of world travel. On the other hand, the significance of tourism may be
examined with respect to the importance of tourist activity to the economy of each destination.
International tourism in selected countries
Events that have happened throughout the 1990s and the first part of the twenty-first century have
had a profound effect on the patterns and flow of international tourism. How permanent these
effects will be depends, to a large extent, on the future political and economic stability of the world.
The selection of countries for inclusion in tables of top generating and top recipient countries is at
best challenging and worst arbitrary.
Table 7.1: Principal tourist-generating countries, 2000-2014: expenditure
Table 7.2: Principal destinations in terms of tourism receipts, 2000-2014: tourism receipts
Tourism does not perform well as a global redistributor of income and wealth in the same way as it
does for sub-national income redistribution. Many of the top generating countries are included in the
top receiving countries. It is also notable that it is the industrialised countries that tend to populate
the lists in both the top generators of tourist expenditure and the top recipients.
Dependence upon tourism
Table 7.3 travel and tourism’s contribution to GDP, employment, exports and investment, 2015
(%)
Table 7.3 provides another way of examining the economics significance of tourism for countries by
looking at dependence on tourism receipts (economic dependence) relative to total gross domestic
product (GDP), employment, export earnings and investment for 2015. Travel and tourism’s
contribution is shown as a percentage of each indicator both as a direct significance, i.e. the first
round effect of international tourism receipts, and as a total contribution which takes into account
the secondary effects of travel and tourism spending as it runs through the supporting sectors.
Two major problems that exist when making international comparisons of tourism expenditure and
receipts are that the data are generally expressed in current prices and are standardised in US
dollars. The problems created by this form of presentation is that
(1) it does not take into account the effects of inflation , and
(2) movements in the value of the dollar exchange rate (which can be both frequent and dramatic)
will appear as changes in the local value of tourist receipts and expenditure. This is particularly true
in the somewhat volatile economic state that has characterised the twenty-first century to date.
Also, the US dollar has suffered as a result of its massive trade deficit and its involvement in the
conflicts in Afghanistan and Iraq.
Table 7.4 Tourism balance sheets fort he top ten tourist spenders
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