Economics of Tourism

1. The Economics Of Tourism
Economics is the branch of knowledge concerned with the production,
consumption, and transfer of wealth

2. Objectives
• To explain the role of tourism in economic development
• To analyze the economic impact of tourism on a destination area
• To differentiate the direct effects from the secondary of tourists
expenditures on the economy of the host area
• To elucidate the meaning of tourism multiplier and its effect on the
economy of the host country
• To describe the undesirable effects of the economic aspects of
tourism
• To identify the strategies which can maximize the economic effects of
tourism

3. The Role of Tourism in Economic
Development
• There is a continuous demand for international travel in developed
countries
• As income in developed countries increases, the demand for tourism
also increases at a faster rate
• Developing countries need foreign exchange to aid their economic
development

4. Tourism VS International Trade
1. The tourists get the product from the host country. No need to use
freight to deliver goods.
2. International tourism is price elastic and demand elastic.
3. Foreign exchange is manipulated (usually prices are made lower
and affordable for tourists) to attract more tourists.
4. Tourism is multifaceted directly affecting several sectors in the
economy.
5. Tourism bring many non-monetary benefits and costs: social,
cultural, and environmental benefits and costs

5. Economic Impact
• Tourism brings in revenue to host destination
• Tourist expenditures increases economic activity in host destination
• Increases foreign exchange earnings to finance economic growth
• Source of income for local residents

6. Direct and Secondary Effects
• Direct means income directly received from tourists by businesses or
service providers
• Indirect or secondary effects are money used to pay for the creation
and delivery of such services/products

7. Tourism Multiplier
• Multiplier effects describes the total effect, both indirect and direct,
of an external source of income introduced to an economy.
• Leakage is the value of goods that needs to be imported to service the needs
of tourism.

8. Cost Benefit Ratio
• Benefit/cost= CB Ratio
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 tourists expenditures in dollar
5. Derive a cost benefit ratio express as dollars received/ dollars spend
6. Apply the cost-benefit ratio to tourist expenditures to provide estimates
of income and costs of tourist business to community both public and
private sectors

9. Undesirable Aspects of Tourism
• Economic instability
• Additional demand and or increased imports
• Decline in tourist arrivals
• Political effects
• Safety and security
• Spread of diseases
• Fluctuations in the money market

10. How to Maximize the Economic Effect of
Tourism
1. Growth Theories
• Balanced Theory --- emphasis on supply management
• Unbalanced Theory--- emphasis on demand management
2. Economic Strategies
3. Import Substitution
4. Incentives
5. Foreign Exchange