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1 TOURISM’S GROWTH and NATIONAL ECONOMIES 1. The National Economy 2. Factors affecting tourism’s contribution to GDP 3. Problems in measuring tourism’s.

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Presentation on theme: "1 TOURISM’S GROWTH and NATIONAL ECONOMIES 1. The National Economy 2. Factors affecting tourism’s contribution to GDP 3. Problems in measuring tourism’s."— Presentation transcript:

1 1 TOURISM’S GROWTH and NATIONAL ECONOMIES 1. The National Economy 2. Factors affecting tourism’s contribution to GDP 3. Problems in measuring tourism’s growth contribution to GDP

2 2 TOURISM’S GROWTH and NATIONAL ECONOMIES (cont.) 4. International comparisons of tourism in GDP 5. Methods of measurement 6. Tourism’s growth and its effects on an economy 7. Forecasting the value of tourism

3 3 1. The national economy  The size and value of national economy is usually expressed as the total value of all goods and services produced by that economy during a specified time period, such as one year.  A country 's Gross Domestic Product, or GDP  The two main elements of GDP are 1. goods and services produced for consumption (C), or use in their own right, 2. and those produced for fixed capital formations or investment (I) in capacity to produce further goods and services.

4 4 1. The national economy  The simple definition GDP = C + I assumes that an economy is closed to foreign trade.  As this is an unrealistic assumption for almost all economies, we should include the value of all exports (X), but exclude that of all imports (M), of goods and services during the chosen time period.  The definition is thus improved a little, and reads GDP = C + I + X - M

5 5 1. The national economy  GNP excludes from GDP such factor receipts as property income from overseas since this money has really been generated in the overseas, rather than the home economy.  National income can be defined as the net amount earned by the economy's factors of production which means deducting the value of assets "used up" or capital consumption from GDP.

6 6 1. The national economy Travel and tourism is likely to figure in all aspects of GDP. Travel and tourism is likely to figure in all aspects of GDP.  Firstly, most expenditure by tourists would be regarded as consumption spending ( C ), if for domestic tourism or for the home-provided elements of an international trip.  Secondly, expenditure by businesses on buildings, plant, equipment and so on to provide tourism services is part of investment (I), much of which is likely to be government expenditure, especially on infrastructure.

7 7 1. The national economy  Thirdly, a tourist who is spending money in a foreign country or travelling on transportation services owned by other country or travelling on transportation services owned by other countries is in a sense "importing" services. This expenditure is a leakage from the national economy.  Finally, the reverse situation provides an "export" when a country can sell its transportation or tourism services to international tourists from elsewhere.

8 8 2. Factors affecting tourism’s contribution to GDP  Some of these factors are demand-side ones (that is, the importance of tourism is partly determined by the strength of domestic and inbound demand for local tourism)  but the ability of a tourism sector to expend within an economy to satisfy these demands and create further ones depends more frequently on supply-side factors.  It is possible to identify five major factors, which determines tourism's role in GDP.

9 9 2. Factors affecting tourism’s contribution to GDP Factor 1: the stock of resources  In traditional economic terms: land, labor, capital, and enterprise.  Most tourism involves some element of service, which requires a component and willing labor force. Whist many jobs in the industry may not require a very high level of traditional skills or qualifications, the presence or absence of a pool of labour with a positive attitude towards tourism and tourists are of vital importance.  Equally, an economy's willingness and ability to supply the capital investment required for a tourism industry will influence the size to which that industry can grow.

10 10 2. Factors affecting tourism’s contribution to GDP Factor 2: the state of technical knowledge  Many LDCs have regarded tourism as an easy industry to develop, because it demands relatively low technology and skills which can be easily mastered.  As tourism worldwide has become more sophisticated, high-value contributions to GDP by tourism have tended to become associated with higher technologies. Examples: fleets of large cost-efficient aircraft, high technology in reservations and passenger handling, technical innovation in providing more interesting, all- season attractions.  When technical advances are applied to existing inputs of other resources, they enhance the productivity of the industry concerned and hence its contribution to GDP.

11 11 2. Factors affecting tourism’s contribution to GDP Factor 3: social and political stability  Since "consuming tourists" must go to the "factory" to buy the product, social and political conditions in that "factory" will directly influence the acceptability of the product and therefore the success of the industry.  We may continue to buy goods imported from a country in political turmoil (unrest) but are unlikely to want to visit it.  They are more likely to be responsible for short- term fluctuations in the value of the tourism sector.

12 12 2. Factors affecting tourism’s contribution to GDP Factor 4: attitudes and habits  Another major non-economic determinant is that of psychological values, both of suppliers and consuming tourists.  Firstly, the attitudes of a host population towards tourists, and in particular those of workers within the tourism sector, are an important facet of the tourism product and their influence is similar in nature to that of social and political stability.  Secondly, on the demand side, tourism-consuming habits are important. Two generating markets with similar levels of income may have different propensities to travel. This may be a function of cultural and traditional values, attitudes, or the quality of climate and physical surroundings at home.

13 13 2. Factors affecting tourism’s contribution to GDP Factors 5: investment  The level of tourism investment or fixed capital formation.  Tourism has not traditionally required such substantial investment in plant and equipment per dollar of output, yet some areas of the industry are becoming more demanding of fixed capital formation-notably passenger carriage, accommodation and infrastructure.  However, an industry that is both heavily influenced by fashion trends, and hosts its customers in its factory must inevitably invest in new and expanded facilities as part of its competitive strategy. An economy's ability and willingness to provide finance for such investment influences tourism's role in that economy.

14 14 3. Problems in measuring tourism’s contribution to GDP  Estimating the value of a service sector is more difficult than with goods, owing to the non-tangible nature of products.  Tourism is particularly difficult because of the fuzzy(indefinite) definitions of services included in it.  Despite these difficulties, most countries still attempt to provide an estimate of the value of tourism for comparative and planning purposes.

15 15 3. Problems in measuring tourism’s contribution to GDP  Such a value will be a summary of private commercial transactions openly accounted for.  However, it will be inadequate to permit an accurate assessment of the real value of the sector, because it will omit some positive and negative items, the most important of which are:

16 16 3. Problems in measuring tourism’s contribution to GDP (a) Unpaid services (b) Non-accounted services (c) Notional costs (d) Public and private revenue distribution (e) Balance of payments anomalies (f) Social costs and benefits (g) Public goods

17 17 (a) Unpaid services  Unpaid services are those performed for no payment, or a payment in kind or in reciprocity (mutual action).  If no payment of any kind is made, one can argue that no economic activity has taken place even though the service exists, but an economy transaction certainly exists for a reciprocal or barter payment.

18 18 (b) Non-accounted services  Non-accounted services are those which take place and for which payment is received, usually in cash, but are not accounted for formally.  This may be to avoid taxation, wages regulations or for simple convenience, and the overall result is designated the black economy.

19 19 (c) Notional costs  Notional costs are those, which relate in principle to activity A, but are accounted for within activity B.  One example in tourism comes from second home ownership. If a vacationer buys a second home, which appears simply as once-and-for-all property purchase, which home may be used for vacations.  Owners then pay no recurrent accommodation costs, but may be considered to be paying a notional rent to themselves equal to the commercial rental value of their properties. This is part of the "real value" of tourism.

20 20 (d) Public and private revenue distribution  Public and private revenue distribution concerns the distinction between sourcing and using revenues earned by the private sector in one area, but spent by the public sector in another.  For example, if a government collects a tourism tax and uses this revenue in expenditure on agricultural support, it must be decided whether tourism includes the gross value of transactions, while agriculture includes nothing, or whether tourism includes the value net of tax, with the tax being included under agriculture. Otherwise there would be double counting.

21 21 (e) Balance of payments anomalies  Balance of payments anomalies in areas such as tourism investment, repatriation of earnings, and foreign exchange values of tourism revenues expressed in floating currencies, cause measurement problems.

22 22 (f) Social costs  Social costs and benefits are the differences between the value of private commercial transactions and their value to an economy or society as a whole, including third parties.  Tourism & Travel bring benefits, but impose costs, on third parties in many ways, in such a way that the social net product of the sector may be quite different from the private net product.

23 23 Public goods  Public goods are in a sense part of social benefits. Governments are increasingly aware of the "value" to society of, for example national parks, outstanding scenery or heritage buildings for which no tourist entrance price has hitherto (so far) been charged.  The "real value" of tourism might include the national prices that users may be willing to pay multiplied by the number of the users.


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