Macro Perspective of Tourism and Hospitality PDF

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management INSTRUCTIONAL MATERIAL for Macro Perspective of Tourism and Hospitality TMHM 20013 BSHM 1 1st Semester 2020-2021...

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management INSTRUCTIONAL MATERIAL for Macro Perspective of Tourism and Hospitality TMHM 20013 BSHM 1 1st Semester 2020-2021 Macro Perspective of Tourism and Hospitality Compiled By: MS. MILDRED M. MONDRAGON, MMHM MISS MILDRED MERJUDIO MONDRAGON, MMHM 1  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management COURSE/SUBJECT MATERIALS LESSON 4 - The Economics of Tourism 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 tourists) than those in other foreign trade markets. Also, tourists are allowed to buy in domestic markets at the same prices as the local residents (the exceptions are the duty-free tourist shops operated in many Caribbean islands and elsewhere). MISS MILDRED MERJUDIO MONDRAGON, MMHM 2  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management 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 producers, and indirectly affects many others, such as equipment manufacturers and utilities. 5. Tourism brings many more non-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 Effects In order to measure the economic impact of 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 businesses such as hotels. restaurants, car rentals, tour operators, and retail shops serving tourists have a direct effect on the economy of the host are 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 items used in producing the products or direct services bought by tourists. MISS MILDRED MERJUDIO MONDRAGON, MMHM 3  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management Tourism Multiplier The term multiplier is used to describe and secondary, of an external source of income economy. Tourism multiplier or multiplier effect direct and secondary effects of tourist expen of country. The multiplier effect is illustrate al source of income introduced into th or multiplier effect is used to estimateces on the economy or effect is illustrated in Figure 3. Figure 3. Multiplier Effect Source: Mill, R.C. and Alastair Morrison. 1998. The Tourism System. Dubuque, IA. Kendall/Hunt. A tourist makes an initial expenditure into the destination. This expenditure is received as income by local tour operators, handicrafts store owners, hoteliers, and taxi drivers. In the first round of transactions, a hotelier may use some of the money received to buy some supplies, pay some wages, and retain some profits. The income in the second round may be spent or saved, while the employee who has received payment for services rendered may spend some of it on rent and some on food, and may put some into savings. The money spent on supplies in the third round of spending goes for such things as seed, fertilizers, and imported raw materials. Any income spent on imports has leaked out of the local economy. This process continues until the additional income generated by a new round of spending essentially becomes zero. Leakage is the value of goods and services that must be imported to service the needs of tourism. To estimate the total economic impact on an area, imports must be subtracted from the income generated by visitors. The formula for tourism multiplier is: where: K = the multiplier Y = the change in income generated by E E = the change in expenditure (the initial sum of money spent by the tourist) MISS MILDRED MERJUDIO MONDRAGON, MMHM 4  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management The size of the multiplier depends on the extent to which the various sectors of the economy are linked to one another. When the tourism sectors buy heavily from other local economic sectors for goods and services, there will be a smaller tendency to import and the multiplier will be greater than if the reverse were true. A simplified formula for tourism multiplier is: where: K = the multiplier L = the direct first-round leakages c = the tendency to consume cj = the proportion of that propensity spent abroad tic = the indirect tax td = the value of direct deductions (income tax, national insurance, and so on) b = the level of government benefits m = the value of imports Most developing economies have an income multiplier range between 0.6 and 1.2, while developed economies have a range between 1.7 and 2.0. 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 benefits and their costs. Benefits divided by costs equal the cost-benefit ratio. To arrive at these ratios, 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 reflects 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 dollars received/dollars spent; and 6. apply the cost-benefit ratios to tourist expenditures to provide estimates of income and costs of tourist business to a community, for both the private and public sectors. MISS MILDRED MERJUDIO MONDRAGON, MMHM 5  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management Undesirable Economic Aspects of Tourism Some undesirable economic aspects of tourism are higher prices and economic instability. Because of additional demand and/or increased imports, tourist purchases may result in higher prices in a destination area. This would mean that local residents, would also have to pay more for products and services. Since pleasure travel is a discretionary item, it is subject to changes in prices and income. These fluctuations may result in economic instability. 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. Proponents of the theory of balanced growth suggest that tourism should be viewed as an important part of a broad-based economy. This theory stresses that tourism needs the support of other industries. Its objective is to integrate tourism with other economic activities. To obtain maximum economic benefit, tourism goods and services should be locally produced. 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. Import Substitution It imposes quotas or tariffs on the importation of goods, which can be developed locally. It also grants subsidies, grants. or loans to local industries to encourage the use of local materials Its objective is to minimize the leakage of money, D. Incentives The wise use of incentives can encourage the influx of capital both local and foreign, necessary to develop tourism supply. The most common forms of incentives are: MISS MILDRED MERJUDIO MONDRAGON, MMHM 6  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management 1. tax exemptions/ reductions on imported machinery, materials, etc; 2. reduction in company taxation by means of favorable depreciation allowances on investment, or special treatment in relation to excise taxes, sales taxes, income taxes, turnover taxes, profit taxes, or property taxes 3. tax holidays (limited period); 4. guarantee of stabilization of tax conditions (for up to 20 years); 5. grants (for up to 30 percent of total capital costs); 6. Subsidies (guaranteeing minimum level of profit, occupancy, etc.); 7. loans at low rates of interest; 8. provision of land freehold at nominal or little cost or at low rents; 9. free and unrestricted repatriation of all or part of invested capital profits, dividends, and interest subject to tax provisions; and 10. guarantees against nationalization or appropriation. Before implementing an incentive strategy, a destination should: 1. examine the performance of the schemes of other countries in the light of their resources and development of objectives; 2. research the actual needs of investors; 3. design codes of investment concessions related to specific development objectives with precise requirements of investors; and 4. establish targets of achievements and periodically monitor and assess the level of realization of such targets. E. Foreign Exchange Many countries have placed restrictions on spending in order to maximize foreign exchange earnings. They have limited the amount of their own currency that tourists can bring in and take out of the destination to ensure that foreign currency is used to pay bills in the host region. Tourists may be required to pay hotel bills in foreign currency. Visitors may be required to show that they have enough money for their stay before they are permitted to enter the country or they may even be required to enter with a specified amount of foreign currency for the duration of their visit. MISS MILDRED MERJUDIO MONDRAGON, MMHM 7  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management Read: The Economics of Tourism Read: https://tourismteacher.com/economic-impacts-of-tourism/ Read: Chapter 4, The Economics of Tourisml by: Zenaida Lansangan-Cruz; Watch : Videos on youtube- https://m.youtube.com>  Economics of Tourism  Tourism and Economic Development  Economic Impact of Tourism MISS MILDRED MERJUDIO MONDRAGON, MMHM 8  POLYTECHNIC UNIVERSITY OF THE PHILIPPINES LOPEZ QUEZON BRANCH BS Hospitality Management ACTIVITIES/ASSESSMENT Reflection Paper. 4. Reflection Paper about the impacts of tourism in a destination are and explain your understanding about the tourism multiplier. Lastly, discuss the strategies that can maximize the economic effect of tourism. Instruction: Reflection paper in a short bond paper. It should contain the following: - Your E-Signature on every page place at the bottom - The first page should contain the PUP logo, your subject description and code, your name, professor name and the date submitted Rubric for Reflection : Reflective Thinking 20% Analysis 30% Making Connections 30% (Ideas are clearly connected and make sense) Clearly Organized 20% Total 100% Remarks/Comments: ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________ _____. Note: Please Submit your reflection paper on the specified due date. MISS MILDRED MERJUDIO MONDRAGON, MMHM 9