MACRO PERSPECTIVE

OF TOURISM AND
HOSPITALITY
Zenaida Lansangan-Cruz PhD
-Author-

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 Chapter 3
THE ECONOMICS OF TOURISM AND
HOSPITALITY

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 Lesson Contents
The Role of Tourism and Hospitality in Economic
Development. Economic Impact. Direct and
Secondary Effects. Tourism Multiplier. Cost-Benefit
Ratio. Undesirable Economic Aspects of Tourism. How
to Maximize the Economic Effect of Tourism and
Hospitality.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

LESSON OBJECTIVES
1. Explain the role of tourism and hospitality in economic
development;
2. Analyze the economic impact of tourism and hospitality on a
destination area;
3. Differentiate the direct effects from the secondary effects of
tourist expenditures on the economy of the host area;
4. Elucidate the meaning of tourism multi plier and its effect on the
economy of the host country;
5. Describe the undesirable effects of the economic aspects of
tourism and hospitality; and
6. Identify the strategies which can maximize the economic effects of
tourism and hospitality.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

DISCUSSION QUESTIONS
1. Discuss the roles of tourism and hospitality in economic
development.
2. Differentiate tourism and hospitality from international trade.
3. Explain the economic impacts of tourism and hospitality on a
destination area.
4. Describe the direct and secondary effects of tourist expenditures.
5. Explain the meaning of tourism multiplier.
6. In what way does the tourism multiplier affect the economy of the
host country?
7. Define cost-benefit ratio. Why is it important?
8. Discuss the undesirable economic aspects of tourism and
hospitality.
9. Describe the strategies that can maximize the economic effect of
tourism and hospitality.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 The Role of Tourism and Hospitality in
Economic Development

1. Tourism and hospitality development serve as an alternative

to help economic growth in developing countries.

REASONS:
a. There is a continuous demandd for international travel in
developed countries
b. As income in developed countries increases, the demand for
tourism and hospitality also increases at a faster rate.
c. developing countries need foreign exchange to aid their
economic development.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 The Role of Tourism and Hospitality in
Economic Development

2. The Organization for Economic Cooperation and Development

(OECD) has concluded that tourism and hospitality provides a
major opportunity for growth to countries that are at the
intermediate stage of economic development and require more
foreign exchange earnings.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 The Role of Tourism and Hospitality in
Economic Development

3. Tourism and hospitality is an invisible export which differs

from international trade in many ways.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 Tourism and Hospitality Vs
International Trade
1. In tourism and hospitality, 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. International tourism and hospitality are both price elastic and
income elastic.
3. Using specific fiscal measures, 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 numbers of tourists) than those in other foreign trade
markets. 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.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

4. Tourism and hospitality 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 and hospitality brings many more non-
monetary benefits and costs than other export
industries, such as social, cultural, and
environmental benefits and costs.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 Economic Impact
• Tourism and hospitality 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 and hospitality as
a means to increase foreign exchange earnings to
produce investment necessary to finance economic
growth.
• The tourism and hospitality industry’s economic impact
on a destination area can be immense since it provides
a source of income, employment, and foreign
exchange.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

• Direct and Secondary Effects
- 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, and other items used in
producing the products or direct services bought by tourists.
• Tourism Multiplier
- The term “multiplier” is used to describe the total effect,
both direct and secondary, of an external source of income
introduced into the economy. The tourism multiplier or
multiplier effect is used to estimate the direct and secondary
effects of tourist expenditures on the economy of a country.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

In what way does the tourism multiplier affect
the economy of the host country?
• 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 size of the multiplier depends on the extent to which
the various sectors of the economy are linked to one
another.
• When the tourism and hospitality 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.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 Cost-Benefit Ratio
Why is Cost-Benefit Ratio important?
- Benefits divided by costs equal the cost-benefit ratio.
- The cost-benefit ratios are applied to tourist expenditures
to provide estimates of income and costs of tourist
business to a community, for both the private and public
sectors.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

Undesirable Economic Aspects of Tourism
• Some undesirable economic aspects of tourism and
hospitality 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.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

 How to Maximize the Economic Effect of
Tourism and Hospitality
Growth Theories
• These are the theory of balanced growth and the theory of
unbalanced growth.
• Its objective is to integrate tourism and hospitality with other
economic activities. To obtain maximum economic benefit, tourism
and hospitality goods and services should be locally produced.
Economic Strategies
• The key to maximizing the economic effects of tourism and
hospitality is to maximize the amount of revenue and jobs
developed within the region.
• To attain this objective, some economic strategies have been
adapted, such as import substitution, incentives, and foreign
exchange.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

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.

Incentives
• The wise use of incentives can encourage the influx of capital,
both local and foreign, necessary to develop tourism and
hospitality supply.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

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.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

LESSON SUMMARY
• Many developing countries have used tourism and hospitality
development as an aid to economic growth.
• The reasons for this are: there is a continuous demand for
international travel in developed countries; and the demand for
tourism and hospitality will increase as incomes in developed
countries increase.
• Developing countries need foreign exchange to aid their economic
development.
• The economic impact of tourism and hospitality on a destination
area is enormous since it provides a source of income,
employment, and foreign exchange.
• Tourist expenditures have direct and secondary effects on the
economy of a country.
• The tourism multiplier is affected by leakages or the value of
services that must be imported to lower the multi plier effect; the
less leakages, the greater the multiplier effect.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

LESSON SUMMARY
• The cost-benefit ratio determines which economic sector
will produce the most benefit in terms of income generated
relative to the cost of development. It is obtained by
dividing the benefits by the costs.
• There are some economic aspects of tourism and
hospitality which are undesirable.
• These are higher prices and economic instability. Higher
prices are brought about by additional demand and/or
increased imports, while economic instability is the result
of fluctuations in prices and income.
• The economic effect of tourism and hospitality can be
maximized through the following: strategies, import
substitution, incentives, and foreign exchange.

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY

APPLICATION AND ASSESSMENT
1. Less-developed countries often rely heavily on
import duties rather than on income taxes for
revenue. Take a position for or against import duties
as they affect tourism and hospitality development.
2. In less-developed countries, leaks in the economy
occur when money is sent out of the country. How
can these leaks be stopped?
3. Advanced industrialized nations often experience a
travel deficit. How can the governments of these
countries solve this situation?

MACRO PERSPECTIVE OF TOURISM AND HOSPITALITY