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TOURISM’S GROWTH and NATIONAL TOURISM’S GROWTH and NATIONAL ECONOMIESECONOMIES

1. The National Economy1. The National Economy

2. Factors affecting tourism’s 2. Factors affecting tourism’s contribution to GDPcontribution to GDP

3. Problems in measuring 3. Problems in measuring tourism’s growth tourism’s growth contribution to GDPcontribution to GDP

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TOURISM’S GROWTH and NATIONAL TOURISM’S GROWTH and NATIONAL ECONOMIES (cont.)ECONOMIES (cont.)

4. 4. International comparisons of tourism in International comparisons of tourism in GDPGDP

5. Methods of measurement5. Methods of measurement

6. Tourism’s growth and its effects on an 6. Tourism’s growth and its effects on an economyeconomy

7. Forecasting the value of tourism7. Forecasting the value of tourism

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1. The national economy1. The national economy The The sizesize and and valuevalue of of nationalnational economyeconomy is is

usually expressed as the usually expressed as the total value of all total value of all goods and servicesgoods and services produced by that produced by that economy during a economy during a specifiedspecified time period, such time period, such as one year. as one year.

AA country 's country 's Gross Domestic ProductGross Domestic Product, or , or GDPGDP

The two main elements of The two main elements of GDPGDP are are 1.1. goods and servicesgoods and services produced for produced for

consumptionconsumption (C),(C), or use in their own right, or use in their own right, 2.2. and those produced for and those produced for fixed capitalfixed capital formationsformations

or or investmentinvestment (I)(I) in capacity to produce further in capacity to produce further goods and services.goods and services.

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1. 1. The national economyThe national economy The simple definition The simple definition GDP = C + IGDP = C + I assumes assumes

that an economy is closed to that an economy is closed to foreignforeign tradetrade. . As this is an unrealistic assumption for As this is an unrealistic assumption for

almost all economies, we should include almost all economies, we should include the value of all the value of all exportsexports (X),(X), but exclude but exclude that of all that of all importsimports (M),(M), of goods and of goods and services during the chosen time period. services during the chosen time period.

The definition is thus improved a little, and The definition is thus improved a little, and reads reads GDP = C + I + X - MGDP = C + I + X - M

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1. The national economy1. The national economy

GNPGNP excludes from excludes from GDPGDP such factor such factor receiptsreceipts as as propertyproperty income from overseas income from overseas since since this money has really been generated this money has really been generated in the in the overseasoverseas, rather than the , rather than the homehome economy. economy.

National income can be defined as the National income can be defined as the net net amountamount earned by the economy's factors of earned by the economy's factors of production which means deducting the production which means deducting the value of assets value of assets ""used upused up"" or or capitalcapital consumptionconsumption from from GDPGDP..

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1. The national economy1. The national economy

Travel and tourismTravel and tourism is likely to figure in all is likely to figure in all aspects of aspects of GDPGDP..

FirstlyFirstly, most expenditure by tourists would be , most expenditure by tourists would be regarded as consumption spending regarded as consumption spending ( C ),( C ), if for if for domestic tourism or for the domestic tourism or for the home-provided home-provided elementselements of an of an international tripinternational trip..

SecondlySecondly, expenditure by businesses on , expenditure by businesses on buildings, plant, equipmentbuildings, plant, equipment and so and so onon to to provide tourism services is part of provide tourism services is part of investmentinvestment (I),(I), much of which is likely to be much of which is likely to be government government expenditureexpenditure,, especially on especially on infrastructureinfrastructure. .

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1. The national 1. The national economyeconomy

ThirdlyThirdly, a tourist who is spending money in a , a tourist who is spending money in a foreign country or travelling on transportation foreign country or travelling on transportation services owned by other country or travelling on services owned by other country or travelling on transportation services owned by other countries transportation services owned by other countries is in a sense "is in a sense "importingimporting" services. This " services. This expenditure is a expenditure is a leakageleakage from the national from the national economy. economy.

Finally,Finally, the reverse situation provides an the reverse situation provides an ""exportexport" when a country can sell its " when a country can sell its transportation or tourism services to transportation or tourism services to international tourists from elsewhere.international tourists from elsewhere.

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2. Factors affecting tourism’s 2. Factors affecting tourism’s contribution to GDPcontribution to GDP

Some of these Some of these factors factors are are demand-sidedemand-side ones ones ((that is, the importance of tourism is that is, the importance of tourism is partly determined by the strength of partly determined by the strength of domestic and inbound demand for local domestic and inbound demand for local tourism)tourism)

but the but the abilityability of a tourism sector to expend of a tourism sector to expend within an economy to satisfy these within an economy to satisfy these demands and create further ones depends demands and create further ones depends more frequently on more frequently on supply-sidesupply-side factors. factors.

It is possible to identify It is possible to identify fivefive major major factorsfactors, , which determines tourism's role in which determines tourism's role in GDPGDP. .

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2. Factors affecting tourism’s contribution to 2. Factors affecting tourism’s contribution to GDPGDP

Factor 1: the stock of Factor 1: the stock of resourcesresources In traditional economic terms: In traditional economic terms: land, labor, land, labor,

capital, and enterprise. capital, and enterprise. Most tourism involves some element of service, Most tourism involves some element of service,

which requires a component and willing which requires a component and willing laborlabor force. Whist many jobs in the industry may not force. Whist many jobs in the industry may not require a very high level of traditional require a very high level of traditional skillsskills or or qualificationsqualifications, the presence or absence of a , the presence or absence of a pool of labour with a positive attitude towards pool of labour with a positive attitude towards tourism and tourists tourism and tourists are of are of vital importance. vital importance.

Equally, an economy's Equally, an economy's willingnesswillingness and and abilityability to to supplysupply the capital investment required for a the capital investment required for a tourism tourism industry industry will influence the size to which will influence the size to which that industry can grow.that industry can grow.

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2. Factors affecting tourism’s contribution to GDP2. Factors affecting tourism’s contribution to GDP

Factor 2: the state of Factor 2: the state of technical knowledgetechnical knowledge Many Many LDCs LDCs have regarded tourism as an easy industry have regarded tourism as an easy industry

to develop, because it demands relatively low to develop, because it demands relatively low technology technology and and skills which can be easily mastered.skills which can be easily mastered.

AsAs tourism worldwide has become more sophisticated, tourism worldwide has become more sophisticated, high-value contributions to high-value contributions to GDPGDP by tourism have by tourism have tended to become associated with higher technologies. tended to become associated with higher technologies. ExamplesExamples: : fleetsfleets of large of large cost-efficient cost-efficient aircraftaircraft, high , high technology in technology in reservationsreservations and passenger and passenger handlinghandling, , technical innovation in providing more interesting, all-technical innovation in providing more interesting, all-season attractions. season attractions.

When technical advances are applied to existing inputs When technical advances are applied to existing inputs of other resources, they enhance the productivity of the of other resources, they enhance the productivity of the industry concerned and hence its contribution to industry concerned and hence its contribution to GDPGDP..

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2. Factors affecting tourism’s contribution to GDP2. Factors affecting tourism’s contribution to GDP

Factor 3: social and political stabilityFactor 3: social and political stability Since "Since "consuming touristsconsuming tourists" must go to the "" must go to the "factoryfactory" "

to buy the product, to buy the product, socialsocial and and politicalpolitical conditionsconditions in that "in that "factoryfactory" will directly influence the " will directly influence the acceptability of the product and therefore the acceptability of the product and therefore the success of the industry. success of the industry.

We may continue to buy goods imported from a We may continue to buy goods imported from a country in political country in political turmoilturmoil (unrest) (unrest) but are unlikely but are unlikely to want to visit it.to want to visit it.

They areThey are more likely to be responsible for more likely to be responsible for short-short-termterm fluctuationsfluctuations in the value of the tourism in the value of the tourism sector.sector.

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2. Factors affecting tourism’s contribution to GDP2. Factors affecting tourism’s contribution to GDP

Factor 4: attitudes and habitsFactor 4: attitudes and habits Another major Another major non-economicnon-economic determinant is that of determinant is that of

psychologicalpsychological valuesvalues, both of suppliers and consuming , both of suppliers and consuming tourists.tourists.

FirstlyFirstly,, the the attitudesattitudes of a of a host populationhost population towards tourists, towards tourists, and in particular those of and in particular those of workersworkers within the tourism sector, within the tourism sector, are an important facet of the tourism product and their are an important facet of the tourism product and their influence is similar in nature to that of social and political influence is similar in nature to that of social and political stability. stability.

SecondlySecondly, on the demand side, tourism-consuming , on the demand side, tourism-consuming habitshabits are important. Two generating markets with similar levels of are important. Two generating markets with similar levels of income mayincome may have different have different propensitiespropensities to travel. This may to travel. This may be a function of be a function of culturalcultural and and traditionaltraditional values, values, attitudesattitudes, , or the or the qualityquality of of climateclimate and and physicalphysical surroundingssurroundings at at home. home.

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2. Factors affecting tourism’s contribution to GDP2. Factors affecting tourism’s contribution to GDP

Factors 5: investmentFactors 5: investment TThe level of tourism investment or he level of tourism investment or fixed capitalfixed capital

formationformation.. TourismTourism has not traditionally required such substantial has not traditionally required such substantial

investment in investment in plantplant and and equipmentequipment per dollar of output, per dollar of output, yet some areas of the industry are becoming more yet some areas of the industry are becoming more demanding of fixed capital formation-notably demanding of fixed capital formation-notably passenger passenger carriagecarriage, , accommodationaccommodation and and infrastructureinfrastructure..

However, an industry that is both heavily influenced by However, an industry that is both heavily influenced by fashionfashion trends, and hosts its customers in its factory trends, and hosts its customers in its factory must inevitably invest in new and expanded facilities as must inevitably invest in new and expanded facilities as part of its competitive strategy. An economy's part of its competitive strategy. An economy's abilityability and and willingnesswillingness to provide to provide financefinance for such investment for such investment influences tourism's role in that economy.influences tourism's role in that economy.

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3. Problems in measuring tourism’s contribution to GDP3. Problems in measuring tourism’s contribution to GDP

Estimating the value of a service sector is Estimating the value of a service sector is moremore difficult than with goods, owing to the difficult than with goods, owing to the nonnon--tangibletangible nature of products. nature of products.

Tourism is particularly difficult because of Tourism is particularly difficult because of the the fuzzyfuzzy(indefinite)(indefinite) definitions of definitions of servicesservices included in it. included in it.

Despite these difficulties, most countries still Despite these difficulties, most countries still attempt to provide an estimate of the value attempt to provide an estimate of the value of tourism for of tourism for comparativecomparative and and planningplanning purposespurposes. .

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3. Problems in measuring tourism’s 3. Problems in measuring tourism’s contribution to GDPcontribution to GDP

Such a value will be a summary of Such a value will be a summary of privateprivate commercial transactionscommercial transactions openly accounted openly accounted for. for.

However, it will be inadequate to permit an However, it will be inadequate to permit an accurate assessmentaccurate assessment of the of the real value of real value of the sectorthe sector, because it will omit some , because it will omit some positivepositive and and negativenegative items, the most items, the most important of which are:important of which are:

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3. Problems in measuring tourism’s 3. Problems in measuring tourism’s contribution to GDPcontribution to GDP

(a) (a) Unpaid servicesUnpaid services

(b) (b) Non-accounted servicesNon-accounted services

(c) (c) NNootional coststional costs

(d) (d) Public and private revenue distributionPublic and private revenue distribution

(e) (e) Balance of payments anomaliesBalance of payments anomalies

(f) (f) Social costs and benefitsSocial costs and benefits

(g) (g) Public goodsPublic goods

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(a) Unpaid services(a) Unpaid services

Unpaid servicesUnpaid services are those performed for are those performed for nono paymentpayment, or a payment in kind or in , or a payment in kind or in reciprocityreciprocity ((mutual actionmutual action). ).

If no payment of any kind is made, one can If no payment of any kind is made, one can argue that no economic activity has taken argue that no economic activity has taken place even though the service exists, but an place even though the service exists, but an economy transaction certainly exists for a economy transaction certainly exists for a reciprocal or reciprocal or barterbarter payment. payment.

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(b) Non-accounted services(b) Non-accounted services

Non-accounted servicesNon-accounted services are those which are those which take place and for which payment is take place and for which payment is receivedreceived, usually in cash, but are , usually in cash, but are not not accountedaccounted for formally. for formally.

This may be to avoid This may be to avoid taxationtaxation, , wages wages regulationsregulations or for simple convenience, and or for simple convenience, and the overall result is the overall result is designated the designated the black black economy. economy.

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(c) Notional costs(c) Notional costs

NNotionalotional costscosts are those, which rela are those, which relatte in principle e in principle to to activityactivity A,A, but are but are accountedaccounted for within activity for within activity BB. .

One example in tourism comes from One example in tourism comes from second home second home ownershipownership. If a vacationer . If a vacationer buysbuys a second home, a second home, which appears simply as once-and-for-all which appears simply as once-and-for-all propertyproperty purchasepurchase, which home may be used for , which home may be used for vacationsvacations. .

Owners then pay no recurrent accommodation Owners then pay no recurrent accommodation costs, but may be considered to be paying a costs, but may be considered to be paying a notional rent to themselves equal to the notional rent to themselves equal to the commercialcommercial rentalrental valuevalue of their properties. This of their properties. This is part of the "is part of the "real valuereal value" of tourism." of tourism.

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(d) Public and private revenue distribution(d) Public and private revenue distribution

Public and private revenue distributionPublic and private revenue distribution concerns concerns the the distinctiondistinction between sourcing and using between sourcing and using revenues earned by the private sector in one area, revenues earned by the private sector in one area, but spent by the public sector in another. but spent by the public sector in another.

For example, if a government collects a tourism tax For example, if a government collects a tourism tax and uses this revenue in and uses this revenue in expenditureexpenditure on on agricultural support, it must be decided whether agricultural support, it must be decided whether tourism includes the tourism includes the grossgross value of value of transactionstransactions, , while agriculture includes nothing, or whether while agriculture includes nothing, or whether tourism includes the tourism includes the value net of taxvalue net of tax, with the tax , with the tax being being includedincluded under agriculture. Otherwise there under agriculture. Otherwise there would be would be double countingdouble counting..

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(e) Balance of payments anomalies(e) Balance of payments anomalies

Balance of payments anomaliesBalance of payments anomalies in areas in areas such as tourism such as tourism investment, repatriationinvestment, repatriation of of earningsearnings, and , and foreign exchange valuesforeign exchange values of of tourism revenues expressed in floating tourism revenues expressed in floating currencies, cause currencies, cause measurement problemsmeasurement problems. .

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(f) Social costs(f) Social costs

Social costsSocial costs and benefits are the and benefits are the differencesdifferences between the value of between the value of privateprivate commercial commercial transactionstransactions and their value to an economy or and their value to an economy or society as a whole, including third parties. society as a whole, including third parties.

Tourism & TravelTourism & Travel bring bring benefitsbenefits, but , but imposeimpose costscosts, on third parties in many ways, in such a way , on third parties in many ways, in such a way that the social net product of the sector may be that the social net product of the sector may be quite different from the private net product.quite different from the private net product.

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Public goodsPublic goods

Public goodsPublic goods are in a sense part of social are in a sense part of social benefitsbenefits. . Governments are increasingly Governments are increasingly aware of the "aware of the "valuevalue" to society of, for " to society of, for example example national parks, outstanding national parks, outstanding sceneryscenery or or heritage buildingsheritage buildings for which no for which no tourist entrance tourist entrance priceprice has hitherto has hitherto (so far) (so far) been been chargedcharged. .

The "The "real valuereal value" of tourism might include the " of tourism might include the national prices that users may be willing to national prices that users may be willing to pay pay multipliedmultiplied by the number of the by the number of the usersusers..