Motivational Video

CHAPTER 3:
THE ECONOMICS OF
TOURISM &
HOSPITALITY
Objectives
1 Explain the role of tourism and hospitality in economic development.

Analyze the economic impact of tourism and hospitality on a

2 destination area;

Differentiate the effects from the secondary effects of tourist

3 expenditures on the economy of the host area;

Elucidate the meaning of tourism multiplier and its effect on the

4 economy of the host country.

Describe the undesirable effects of the economic aspects of tourism

5 and hospitality; and

Identify the strategies which can maximize the economic effects of

6 tourism and hospitality.
 THE ROLE OF TOURISM
& HOSPITALITY IN
ECONOMIC DEVELOPMENT
 Several developing countries have used tourism & hospitality
development as an alternative to help economic growth.

• Continuous demand for international

travel in developed countries.
• As income increases, the demand for
tourism & hospitality also increases
at a faster rate.
• Developing countries need foreign
exchange to aid their economic
development.
Tourism & Hospitality Industry is an invisible export which differs
from international trade in many ways.

1. In tourism & hospitality, the consumer collects

the product from the exporting country.

2. The demand for pleasure is dependent on

non-economic factors. International tourism &
hospitality is both price elastic and income elastic.
3. By using fiscal measures, the exporting or tourist
-receiving country can manipulate exchange rates.
Tourists are allowed to buy in domestic markets at
the same prices as the local residents.

4. Tourism & hospitality is a multifaceted industry.

5. Tourism & hospitality brings many more
non-monetary benefits and costs than other export
industries.
Economic Impact

 Tourism & Hospitality act as an export

industry by bringing in revenues from outside
sources.

 Tourism & Hospitality provide a source of

income, employment, and foreign exchange.
Direct and Secondary Effects
o Direct – income is received directly
- Immediate change occur within the economy
as a result of tourist expenditure.

o Indirect / Secondary effects – money paid by

tourists to businesses are used to pay items used
in producing products or direct services
- Expenditures by tourism related industries.
Tourism Multiplier

 Used to estimate direct and

secondary effects of tourist expenditure
s on the economy of a country.
 MULTIPLIER EFFECTS
Local Tour
Operator
Increased Spend
Personal
Income
Handicrafts Save Seed

Raw Fertilizer
Purchase
Material Import
Tourist of
Supplies (leakage)
Wages

Hotelier
Rent …

Wages Food
Savings …
Services
(e.g., taxi)
Cost-Benefit Ratio Benefit
=
Cost-Benefit
Costs Ratio

1. Determine whether the tourist dollar is spent.

2. Determine whether the percentage of each expenditure leaves the local
economy.
3. Derive a “multiplier effect,” a ratio applied to income that reflects the
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; a
nd
6. Apply the cost-benefit ratio to tourist expenditures to provide estimates of
income and costs of tourist business to a community, for both the private
and public sector.
 You want to lease to lease a piece of
equipment for 20,000 that is expected to increase
yearly profits by 11,000 for the next two years. The
rate of inflation was 8 percent.
NPV = value
(1+r)^t
Undesirable Economic Aspects of Tourism

 Higher prices

 Economic instability
 How to Maximize
the Economic Effect
of Tourism Hospitality
 Growth Theories
 Proposed to maximize the economic effect of tourism and hospitality
within a destination area.

o BALANCED GROWTH THEORY – Tourism & hospitality

should viewed as an important part of a BROAD-BASED
economy.

o UNBALANCED GROWTH THEORY – See’s the tourism &

hospitality as the spark of economic growth.
Economic Strategies

 Maximize the amount of revenue and jobs

developed within the region.
Import Substitution

 Imposes quotas or tariffs on the importation

of goods which can be developed locally.

Incentives

 The wise use of incentives can encourage

the influx of capital both local and foreign.
1. Tax exemptions/reductions
2. Reduction in company taxation
3. Tax holidays
4. Guarantee of stabilization of tax conditions (for up to 20
years)
5. Grants (for up to 30% of total capital costs)
6. Subsidies
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 provisi
ons; 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 light of their resources and development
objectives.
2. Research the actual needs of investors
3. Design codes of investment concessions related to
specific development objectives with precise requirem
ents of investors; and
4. Establish targets of achievements and periodically
monitor and assess the level of realization of such targ
ets.
Foreign Exchange

 Is the exchange of one currency for another

or the conversion of one currency into
another currency.
LET’S HAVE A GAME!
GUESS WHAT?
MAN OH MEANT AWE
Answer: MONUMENTO
BOO ACHE SKULL OOPS
Answer: BAKE SCALLOPS
BEEK HIM MORE ALL LESS
Answer: VICKY MORALES
 CLUE: money paid by tourists to businesses are
used to pay items used in producing products or
direct services

SEE ACHE CONE DAR RAY EH FAKES

 CLUE: Used to estimate direct and secondary
effects of tourist expenditures on the econom
y of a country.

TWO RAY SAME MOO ALL TAPE LIAR

 CLUE: Tourism & hospitality should viewed as
an important part of a BROAD-BASED
economy.

BAIL LANCE GOO WROTE

THY YOUR RAY
CLUE: It means that the income is received
directly

DAY WHO RAKE EH FAKES

CLUE: The wise use of it can encourage the
influx of capital both local and foreign.

INN SAINT TEA EVES

 THE END
TM 1Y1-1
THANK YOU  ESPIRITU
PAGADUAN
VILLABER
DOLORICA
PARILLO