TOUR

OPERATIONS
M.Sc Tourism & Hospitality
Management
Module Code: THM 302
Year-1

UNIT # 3
Tourism Economics
Group-B
Group Participants: Hira Sajjad
Nida Zulfqar

Sundas Tahira
Hamza Qayyom

UNIT # 3
Tourism Economics
The Basic Economic Questions
The Economic Impacts
Economic Significance
Tourism Multiplier
Employment Multiplier
Employment Generator
Cultural Resources
Infrastructure of Travel & Tourism
Importance of Economic Activity in Tourism

The
Basic Economic Questions
There are some concepts that are conventionally accepted by most
economists as very important. These concepts come in the form of
questions, which are referred to as the fundamental questions of
economics.
What goods to produce?
The first fundamental question is: what goods will be produced? In
economics, it is understood that goods and services do not just exist, they
are produced by humans. The decision to produce a certain product has to
be conscious and deliberate. Usually, the answer to this question means a
lot for a persons view of economics.
How to produce the goods and services?
The second question is how can we produce the said goods and services?
To answer this question appropriately one has to think like an economist.
Who gets the goods and services?
As for who gets the goods and services that are produced, the answer is
anyone who is able and willing to buy the goods and services.
How will changes be effected and accommodated?
This question is about changes and progress in an economy. How are they
going to be effected and by who? In a typical modern economy, changes
are effected by individuals who do so for their own good.

The Economic Impacts

Tourism impacts come in different shapes and forms. These are often
discussed in terms of economy, physical environment of destination, area,
social structure and environmentally sustainable development broad
impacts are:
Economic broadly concern issues of employment generation,
regional development of underdeveloped areas, balance of
payments and foreign exchange.
Social relates to issues of culture, traditions, interpersonal
relationships and lifestyles of both visitors and host communities.
Physical issues concern landscape, ecological conservation and
land use in both built-up and natural areas.
The main reasons of encouraging tourism development have been the
income and employment generation benefits created by visitor
expenditure in the host area. The income and employment impacts can be
spread over to several areas/regions of a country in the following manner:
Most directly in areas with a buoyant level of tourism.
Labour-intensive accommodation units such as hotels spread
over in a large number of attractions.
Ground-handling arrangements of several types.
In underdeveloped areas where there are few other jobs
available.
Income from taxation on tourism activities such as value-added
tax on hotels.
Direct taxation on tourism to raise additional public income (tax
imposed on accommodation or departure tax at airports)
The massive economic gains derived from tourism are seldom exclusive of
social or environmental change. The environmental changes as a result of
mass movements of tourists host areas (destinations) leave behind
profound social and environmental impacts

Economic Significance
The receipts from international tourism can provide a valuable source of
earning for both developed as well as developing countries. Visitor
spending generates income for both public and private sectors, besides
effecting wages and employment opportunities.
Although tourism is sensitive to the level of economic activity in the
tourist-generating countries, it provides more fixed earnings than primary
products. The income from tourism has tended to increase at a higher rate
than merchandise export in a number of countries, especially in countries
having a low industrial base.
Tourism forms a very important source of income, especially foreign
exchange for several countries. Although the quantum contributed in
foreign currency per visitor varies from one destination to another, the
importance of receipts from tourism in the balance-of-payment accounts
and of tourist activities in the national revenue has become considerable
for a number of countries.
Foreign Exchange Earnings: The major economic benefit in promoting
the tourism industry has therefore tended to be the earning of foreign
exchange. Income from foreign tourism in the form of foreign exchange
earnings adds to the national income and as an invisible export, many
offset a loss on the visible trading account.
Many developing countries, particularly the small countries, which are
mainly dependent on primary products such as cash crops, tourism often
offer a more reliable form of income. In European countries, the invisible
earnings from tourism are of major significance and have a very positive
effect on the balance of payments.
Foreign Exchange Earnings assume a great significance in the balance-ofpayment calculations. The balance of payment shows the relationship
between a countrys total payments to all other countries and its total
receipts from them. It may be defined as a statement of income and
expenditure on international account.
Net foreign exchange receipts from tourism are reduced principally by the
import cost of goods and services used by visitors, foreign exchange costs
of capital investment in tourist amenities and promotion and publicity
expenditure abroad.

Tourism Multiplier
Multiplier is the estimation of income that is produced in an economy as a
result of spending cash.
Tourism provides many economic benefits that vary from one country to
another depending upon the nature of the tourism. Money paid by the
tourist will be used by the management to fulfil the demands of the guest
like food, drink, furnishing, laundering and entertainment that they had
incurred in meeting.
Expense made by tourist not only supports the tourism industry directly
but helps indirectly to support many industries that provide their goods
and services to tourism industry. So money spent by a tourist may be used
several times in all sectors of national economy. Tourists contribute to tax
revenue also both directly through sales tax and indirectly through
property and income tax.

Employment Generator
There are large number of jobs in travel and tourism industry that offer
their services in tourist-related attractions and tourist generating areas.
These jobs are available in accommodation sector (hotels), travel industry
(travel agents, tour operators), travel enterprise, manufacturing and
transport services.
The tourist industry is labour-intensive industry and valuable source of
employment. It provides large number of jobs to people that extends from
trainees to highly specialize. Tourism is also responsible for providing
employment to people that are outside of industry. Such indirect
employment includes for example, those who involved in furnishing and
equipment industry, farming and food supply. The construction industry is
also a big source of employment like construction of hotels, airport, water
supply and other accommodation units create job for workers both skilled
and unskilled. In many countries that have a high rate of unemployment,
the promotion of tourism industry can be a great encouragement to
unemployment and economy.

Employment Multiplier
It can be expressed in two ways.
(1)Ratio of combination of direct employment. At the destination the
jobs are directly created in the industry.
(2)Ratio of secondary employment generated per additional unit of
tourist expenditure to direct employment. Workers require their own
goods and services giving rise to further indirectly created
employment in shops, schools, health care institutes. In
employment multiplier jobs with average wage rate are created.

Culture Resources
The term Cultural Resource is not defined in the National
Environmental Policy Act (NEPA) or any other Federal Law. However,
there are several laws and executive orders that deal with particular kinds
of resource that are cultural in character.
The Federal Records Act (FRA) requires that agencies manage
documents in such a way as to protect their historical value.
The Archaeological Resource Protection Act (ARPA) prohibits the
excavation of archaeological resources (anything of archaeological
interest) on Federal or Indian Lands without a permit from the land
manager.
The first appearance of tourism in the world had a cultural motivation
and tourism has always stood as a unique vehicle for the cultural
propagation that is necessary to a deeper understanding of people.
Tourism, with its basic element of movement, stand for the possibility of
communication between differing civilization and it has served in this
sense since its first emergence.
Medlik says: when the tourist comes in contact with the place he visits
and its population, a social exchange take place. His social background
affects the social structure and mode of life of his destination; he is in turn
affected by it and sometimes carries back home with him new habits and
ways of life.
Cultural Heritage is an expression of the way of living developed by a
community and passes on from generation to generation, including
customers, practices, place, objects, artistic expressions and values.
Cultural heritage is often expressed as either Intangible or Tangible
Cultural Heritage (ICOMOS, 2002.)
The mass tourism can contribute unique benefits to the exploiting of the
cultural heritage of a nation and serve indirectly to improve the individual
cultural levels of both citizens and foreigners, while at the same time
developing into national wealth. The circle thus closes: cultural and tourist
economy instead of standing in opposition, derive reciprocal advantage
from one another.
Cultural resources have another specific characteristic which can act as
a positive element in the developing countries. Those developing

countries that possess an ancient civilization or an original cultural can

benefit greatly from tourism as many people would like to experience the
exotic. There will be a great urge on the part of the tourist to visit and
become acquainted with the ancient civilization.

According to Boyer the two-way exchange expressed in the

following term: we can say that the tourist process provides or should
provide for exchange between economic values (from the countries that
receive tourist).
Boyer is clearly referring to the industrialized countries as generators of
characteristic benefit resulting from cultural tourism for the national
economies and the balance of payments of the developing countries are
quite significant.

Infrastructure of Travel and Tourism

Expansion and modernisation of infrastructure is perhaps the single
most important challenge to travel and tourism in reaching its potential
for wealth and employment generation. Many regions in the world are not
in a
position to reap the benefits of tourism simply because of the lack of
infrastructure. The world's top 40 tourist generation and receiving
countries all have excellent infrastructure.
Tourism income is an important source for expansion and modernisation
of infrastructure in a country.
The benefits from infrastructure investments, justified primarily for
tourism- airport, hotels, roads, water supply, information systems and
other public utilities- may be shared by the other sectors of economy.
Development of new infrastructure: The improvement and up
gradation in the existing infrastructure which are undertaken in order to
attract visitors. Such improvement would also confer benefits upon the
resident population by providing them with amenities which, hitherto, they
had not enjoyed.
Deficiencies in the basic infrastructure: is at the root of a series of
serious related to the development of tourism .Construction of primary
infrastructure represents the foundation of any future economic growth
even though they are not directly productive. It has today the important
benefit of being able to profit from the existing infrastructure and thus to
make a decisive contribution to the growth of national economy.
Creation of basic infrastructure for tourist usage will also be of
services to the other sectors of the economy like industry and agriculture.
The outcome of this is better equilibrium of general economic growth.

Importance of Economic Activities

The
economic importance of tourism varies from place to place but can be
seen to make a significant contribution to many countries wealth. MEDCs
benefit massively from tourism in terms of total wealth generated, even if
the % of GDP that tourism generates is small. LEDCs are variable in their
involvement in tourism but most see tourism as an extremely important
way of getting money into their countries. Some LEDCs are reliant on
tourism, and it can create more than 50% of GDP, more than exporting
primary goods such as food stuffs or manufactured goods such as
clothing. This can be problematic, as war, terrorism, or natural disasters
could put people off visiting which would strip away a huge chunk of a
countries income.
These concepts link with the concepts of economy, sustainability and over
reliance;
Economy - The system or range of economic (money making) activity in
a country, region, or community
Sustainability To maintain something for a long period of time without
damaging the environment or economy
Over reliance - the state or fact of being too reliant (dependent) on
someone or something
1. Wealthy nations such as the USA, Spain and France all have huge
tourist numbers and consequently high amounts of money made from
tourism as an activity. However, as a percentage of GDP the contribution
of tourism is small (but not insignificant. These countries receive lots of
people as tourists because they have the infrastructure (hotels, airports,
visitor facilities) to allow tourists to have a great visitor experience. They
are also politically safe places.
2. Poor nations receive far fewer tourists and earn less money from
tourism as an activity. However, tourism can often make up a huge
percentage of countries GDP. This is because those countries have fewer
other industries to make money, and this makes them vulnerable to
changes in their tourism industry.

END OF
UNIT # 3