Economics of Tourism and Hospitality

The Economy of Tourism and Hospitality

• Tourism and hospitality are used by developing countries to increase economic growth.
• Developed countries have a consistent demand for travel.
• Increased incomes in developed countries lead to increased demand for tourism and hospitality.
• Developing countries need foreign exchange to support economic growth.

Role of Tourism and Hospitality in Economic Development

• Tourism and hospitality are a key alternative for economic growth in developing countries.
• Continuous demand for international travel in developed countries fuels the industry.
• As income in developed countries rises, tourism and hospitality demand increases rapidly.
• Developing countries need foreign currency to stimulate economic growth.

Organization for Economic Cooperation and Development (OECD)

• Consumers collect products from exporting countries, reducing freight costs.
• Non-economic factors, like price and income, greatly impact travel demand.
• Exporting nations can manipulate exchange rates through fiscal measures.
• Tourism and hospitality is a complex industry affecting many sectors of the economy.

Economic Impact

• Tourism and hospitality generate revenue, jobs, and foreign exchange.
• They have a significant effect on local economies.
• The industry impacts various sectors, including transport, accommodation, entertainment, and retail.
• The money spent by tourists is cycled through businesses, paying workers and for supplies to further stimulate the economy.

Direct and Secondary Effects

• Direct Effects: Income that businesses directly receive from tourist spending.
• Indirect/Secondary Effects: Money spent by tourists is used by local businesses to pay for supplies, wages, and other costs which circulates within the local economy. 
• Local restaurants might use income from tourists to pay employees or buy from local suppliers.

Tourism Multiplier

• The "multiplier effect" is the total impact of incoming revenue, both primary and secondary.
• A country's economy is directly and indirectly impacted by tourist spending. 
• This is also known as the multiplier effect.

Cost Benefit Ratio

• Cost-benefit ratio is derived by comparing the benefits to the costs of tourism.
• Steps involved in determining the cost-benefit ratio include:
  • Determining where tourist dollars are spent.
  • Identifying the percentage of spent money that remains local.
  • Calculating the multiplier effect applied to tourist spending.
  • Expressing the cost-benefit ratio in terms of dollars received and spent, which provides a clear picture of income and cost to the community.

Undesirable Economic Aspects of Tourism

• Increased costs and unstable economies are two negative economic effects of tourism and hospitality.
• Prices in a destination area often rise due to increased demand for products and services. 
• These price increases may affect local consumers.

How to Maximize the Economic Effects of Tourism and Hospitality– Growth Theories

• Balanced Growth Theory: Tourism and hospitality are integrated into the overall economy, supported by other industries, focusing on maximum benefit. 
• Unbalanced Growth Theory: Tourism or hospitality act as a driving force, thus growing demand which further encourages other industries to accommodate those growing needs of products and services.

Economic Strategies

• Strategies to maximize tourism's economic impact in a region.
• Approaches to encourage profitable tourism.

Import Substitution

• Import restrictions aim to increase the use of locally produced goods and services.
• This is intended to reduce money outflow.

Incentives

• Incentives motivate capital investment in the tourism and hospitality industry.
• Incentives such as tax breaks and loans are often put in place.

Foreign Exchange

• Many countries control tourist spending to manage the inflow of international currency.
• This prevents the excessive outflow of money through limitations on exchange rates.

Explore the intricate relationship between tourism, hospitality, and economic development. This quiz delves into how tourism can be a powerful tool for growth in both developing and developed countries, along with the roles played by international organizations. Assess your understanding of these concepts and their implications for the global economy.