TOURISMS ECONOMIC IMPACT1

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 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.
9/11 ATTACKS (http://www.medindia.net/news/StillSuffering-the-Effects-of-911-Dust-and-Fumes-64883-1.htm)

EMPLOYMENT

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Tourism means job is an old slogan disseminated by the Department of Tourism nationwide. It aims to inform people that it is a laborintensive industry that creates jobs at all levels. As a matter of fact, tourism provides both direct and indirect employment. 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

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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 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. 2. Maximize the amount of psychological experience for tourists. 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.

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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. 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 its 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

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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.

*Optimizing the Experience*

To optimize the experience, it is necessary to determine the combination of destinations preferred and then the possibilities within the money and constraints.

*Optimizing Returns to Businesses*

Goods and services provided to tourist are really inputs to the process of producing the experience, demand for them is derived from demand for tourism as a whole. Some goods and services are: - Complementary and their demand is interrelated in a positive fashion Ex. Packaged tours - Substitutes and characterized by limited are competition

*Optimizing for the Local Economy*

Tourism affects a region during period of intense investment activity and afterward when the investments are producing. Money spent for investment will go to construction and a few other industrial sectors. Money spent by tourists will also be introduced through a few sectors that will also be linked to the economy.

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Multiplier the amount of new economic activity generated as basic income circulates through the economy.

TOURISM EXPORTS AND IMPORTS

Exports - expenditures by foreign visitors in ones country Ex. When Japanese tourist travels to United States and when the tourist come into this country, they are purchasing travel experiences. Ex. North Americans travelling to morocco spend money in the country and bring travel experience home with them. Imports - if citizen of one country spend money in foreign countries, these expenditures become imports for the tourists originating country.

BALANCE OF PAYMENTS EFFECTS

Tourism is one of the worlds largest international industries. As such, it has a noticeable impact on the balance of payments of many nations. We have heard much about the balance of payments of the United States, and, indeed tourism imports do affect the balance of payments and economic conditions generally. We define tourism imports as those expenditures made by American tourists in foreign countries. - "Who got the money?"

*Formula for Balance of Payments*

Y= C + I + G + (X-M) where: Y= gross national product C= consumer expenditures I= investments G= government expenditures X= exports M= imports

INVESTMENT STIMULATION

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The tourist industry has a unique structure. It is characterized by and, in fact, is an agglomeration of a large number of very small units, covering a variety of different services trades such as small restaurants, motels, guest houses, laundries, arts and others. Thus, investment in infrastructure and sometimes expensive superstructure by the government stimulates investment in numerous smaller businesses.

TOURISM INCREASES TAX REVENUE

Tourist may pay taxes like most other people. Because they come from the regions or countries, their expenditures represent an increased tax base for the host government. The wisdom of imposing such special taxes on tourist is questionable.

INFLATIOARY PRESSURE
Inflation can be described as the increase in the prices of commodities at a general level. Tourists generally have a higher expenditure capability than the residents do. Because tourists have higher incomes or because they have saved for the trip and are inclined to splurge while on vacation, they are able to somewhat bid up the prices of such commodities as food, transportation, and arts and crafts. This causes inflationary pressure, which can be detrimental to the economic welfare of the host community. This is particularly true when inflation affects the prices of essentials such as food, clothing, transportation, and housing. Land prices have been known to escalate rapidly in tourist destination areas. The prices that foreigners are willing to pay for vacation homes in the area can decrease the demand for first homes by residents. As the tourist industry developed in an area, land prices rose sharply. With such increases in land prices, it can be expected that local residents (with their lower incomes) are effectively chased out of the housing market in a tourism-developing section.

ECONOMIC MULTIPLIERS
The multiplier effect refers to the sum of these different levels of impacts. They can be positive, such as when the level of tourism spending

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increases, or they can be negative, such as when the level declines. However, it is important to note that the volume of tourism spending can remain unchanged but its distribution amongst the different economic sectors may change, and this can bring about a change in the economic impacts of tourism spending. Direct Effect

The direct are the easiest to understand because they result from the visitor spending money in tourist enterprises and providing a living for the owners and managers and creating jobs for employees. The direct economic effects are those that occur at front-line tourism-related establishments. Therefore, when tourists spend their money in hotels, restaurants, transportation and communication services ,and retail outlets, for example, this will create direct income, output, government revenue and employment effects, as well as requiring some direct imports of goods and services. The direct effects are generally less than the volume of tourism receipts because of the expenditures that immediately leak out of the economy under study. Indirect Effect

The indirect effects come into play as visitor spending circulates and re-circulates. This visitor expenditure gives rise to an income that, in turn, leads to a chain of expenditure-income-expenditure, and so on, until leakages bring the chain to a halt. The indirect economic effects are those subsequent effects as a result of the direct economic effects. For instance, when the tourist spends money in a restaurant, the restaurant will spend some of the money it receives on food and beverage supplies, some of it on transport, heating and lighting, accountancy and other business services, and so on. Leakage It is the revenue loss, which accompanies the spending of newlyacquired foreign exchange on buying foreign goods for re-sale to tourists. Other forms of leakage include savings, which are either not spent by anyone for a long time and just headed for the future, or lent by banks.

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It is clear that when a tourists spending inject funds into the economy of the host area, an economic effects occurs that is specified number of times what was originally spent. Initially, this effect is thought of as an income multiplier. However, there are additional economic phenomena. Increased spending necessitates more jobs which results in an employment multiplier. As business grows in a tourist destination area, more infrastructure and superstructure are constructed which results to capital multiplier. INCOME MULTIPLIER Jobs mean income, which stimulates the economy of the area in which the development occurs. The income multiplier is the number of times which an individual amount of tourist expenditure should be multiplied to identify the total effect on the visited places economy. Economic research is needed in a tourist destination area to determine the income relationship. If the result of such economic research were made available, many beneficial results might be possible. EMPLOYMENT MULTIPLIER The employment multiplier measures changes in economic activity caused by increases or decreases in tourism employment. This varies from region to region. Countrys employment multipliers vary directly with the population or total employment size of the countries: as population size grows, so does the multiplier value. This relationship is as might be expected. In so far as import, leakages would tend to be less where diversity is positively associated with population or total employment. CAPITAL MULTIPLIER As business grows in a tourist destination, more infrastructures and superstructures are constructed which results in a capital multiplier. Estimated number by which the amount of a capital investment is multiplied to give the total amount by which the national income is increased. This multiplier takes all direct and indirect benefits from that investment into account. TRANSACTION MULTIPLIER Because money changes hands a number of times during a year, there is a transaction multiplier. Sales or transaction multiplier measures

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changes in business turnover created by tourism expenditures. This is of particular interest to governmental tax officials where sales tax is imposed.

*Formula for Multiplier*

where: M = marginal (extra) P = propensity (inclination) C = consume (spending, MPC) S = savings (money out of circulation, MPS)

ECONOMIC BENEFITS WIDELY DISTRIBUTED

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: lodging food beverages entertainment clothing gifts & souvenirs photography medical attention jewelry tobacco TRAVEL COMPANIES PAY FOR: wages, salaries, tips & gratuities commissions & payroll taxes food & beverage stocks music & entertainment administrative expenses professional services & insurance premiums advertising & publicity utilities: water, electricity, rubbish removal, etc purchases of goods sold materials & supplies ULTIMATE BENEFICIARIES: accountants/financiers/manag ers cooks/bakers charities automobile agencies/transportation clothing stores arts and crafts producers clerks/cashiers real estate brokers & developers dry cleaners/laundries engineers

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hairdressing cosmetics internal transport tours & sightseeing miscellaneous

repairs & maintenance transportation, licenses & taxes rentals of premises & equipment interest charges & loan repayments capital asset replacements

government landlords restaurants/resorts/night clubs architects 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*

Tourism receipts refer to the expenditure of visitors including their payments to national carriers for international transport. This should include any other prepayments made for goods and services received in the destination country. International tourism receipts grew to US$1.03 trillion in 2011, corresponding to an increase in real terms of 3.8% from 2010. 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.
RAN K 1 2 3 4 5 COUNTRY Germany United States China United Kingdom France INTL. TOURISM EXPENDITURE $84.3 billion $79.1 billion $72.6 billion $50.6 billion $41.7 billion RAN K 6 7 8 9 10 COUNTRY Canada Russia Italy Japan Australi a INTL. TOURISM EXPENDITURE $33.0 billion $32.5 billion $28.7 billion $27.2 billion $26.9 billion

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*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. 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.

STRUCTURAL CHANGES
Structural change implies that instead of diversifying the economic base, the countrys 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

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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*
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
When communities start to be dependent on one industry, the tendency is to neglect the other elements or components of society. Dependence can also lead to a shift in the traditional ways and lifestyles of the people. It can even lead to undesirable change in the attitude of the locales.

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Tourism brings economic benefits to many societies. But too much focus on tourism can kill the other industries that co-exist with it. The Ifugaos are people of great ingenuity and diligence. They are admired because of their greatest contributionthe rice terraces. People from all parts of the world come to the Philippines and see this truly magnificent engineering feat. As people come, tourism grows and the society benefits economically. Tourists spend for services and amenities provided by the communities. Tourism becomes a major contributor to the economic development of the towns. The local community members are lulled and start to depend on tourism as their primary source of income. People may no longer want to cultivate the rice terraces. Instead, they just cater to the services needed by the visitors. Boracay, which was once a simple and quiet island with few residents, is now transformed into a 24/7 tourist destination. During the day, tourists flock to the beaches to swim, sunbathe, and do water sports. At nighttime the bars and other watering holes switch on their lights and open for business.

PRICE ELASTICITY
Demand can be classified as inelastic or elastic on the basis of the relative responsiveness of quantity demanded to changes in price.
ELASTIC DEMAND (|PED| > 1) UNITARY ELASTICIT Y (|PED| = 1) INELASTICI TY DEMAND (|PED| < 1)

Specifically, price E elasticity of demand (PED) RISE S may be defined as the percentage change in demand resulting from PRIC E a given percentage change in FALL price. It can be calculated by the S formula PED = % change in quantity demanded / % change in price

RELATIONSHIPS BETWEEN PRICE ELASTICITY AND PRIC TR falls TOTAL Change (TR) TR rises No REVENUE

TR rises

No Change

TR falls

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

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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 markets 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 tourisms 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, classifications, and definitions that will allow for valid comparisons with other industries and eventually from country to country and between groups of countries; tourisms contribution to gross domestic product (GDP); number of jobs created by tourism in an economy; amount of tourism investment; tax revenues generated by tourism

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industries; tourism consumption; and tourisms impact on a nations balance of payments It aims to increase and improve knowledge of tourisms 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-touristsspend-ph http://www.journal.au.edu/abac_journal/may99/article3_f.html http://pub.unwto.org/WebRoot/Store/Shops/Infoshop/Products/1034/10341.pdf 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 Goeldner CR & Ritchie JR; Tourism: Principles, Practices, Philosophies. Eleventh Edition.