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Economic factors that affect Tourism Report (Assessment)


Tourism is an essential element of economic growth and development of any given country in the contemporary world. A majority of developing countries rely heavily on tourism for government’s revenue. Tourism sector ranks as the leading sector in the creation of jobs, source of foreign exchange, and cultural development in many developing countries.

There are three major types of tourism, which include leisure, exploration, and educational tourism (Sustaining Tourism 2013). Leisure tourism is the most common type of tourism where tourists visit attractive places for holiday and relaxation purposes.

Exploration tourism is a type of tourism that is often undertaken by researchers and scientists for exploration purposes in different parts of the world (Balaguer & Cantavell-Jorda 2002). Exploration tourism is often associated with discovery tours whereby a tourist is more after discovering new things rather than having pleasure.

Finally, educational tourism is the most common type of tourism that is undertaken by young people in different types of the world. Its main aim lies in educational purposes in a selected destination country and visas expire after the ending of the educational course being undertaken. Various economic factors affect tourism either directly or indirectly, but they depend largely on the nature of tourism as shown in this paper.

Economic Factors That Affect Tourism

A tour operator should consider various economic factors in the selection of a tourist destination for holidays, education, and exploration. However, some factors are directly related to the economic growth and development of the country of destination, but these factors have an indirect influence in the relationship between economic factors and tourism.

The first economic factor that needs to be considered is the political environment of the destination country (World Bank 2005). Politics play a major role in the growth and development of any country in the world.

Nature of politics determines the behaviours of stock and foreign exchange markets in the sense that stable political environment attract foreign investors, while unstable political arena forces foreign investors to pull out of the economy. The case is the same for tourism whereby stable political environment is conducive for tourism activities, whereas unstable politics pose insecurity threats to the tourism sector (Todaro 2005).

Hence, a prudent tourist operator cannot recommend such a destination due to low demand of international and domestic tourism. Developing nations are worst hit by political crises and especially during the electioneering periods. During such periods, the political environments are unstable and unpredictable, and in most cases, such an environment creates anxiety in economic activities (Lokman & Hatemi 2005).

In such situations, countries with bad historical politics are worst hit by economic downturns as foreign investors and other locals suspend their economic activities for fear of adverse effects of bad politics. Hence, demand for tourism declines rapidly during such periods until when there is an assurance of political stability.

Secondly, international security is a great factor that determines the nature of demand for both foreign and local tourism. International security is mostly determined by two crucial elements, which include political environment and threats of terror.

Political environment that poses a threat to international security comes from civic wars whereby governments engage in local battles with militia and rebels like the current situation in Syria. In such a case, international community is obliged to move into the rescue of the oppressed, and thus posing international security threat (Arellano & Bond 2002).

On the other hand, threats of terror attacks are currently the leading cause of security threat across the world. Any given country is a potential target for terror attacks, but awareness depends on international security intelligence and wherever a warning is issued on potentiality of a country being attacked by terrorists, tourist operators do not recommend for tourism activities in such destinations.

Terrorism attacks have long-term adverse effects on the tourism industry for a county takes a long time to assure foreigners of its security (Ardahaey 2011). In additional to security matters, individual security is also a matter of great concern in selecting a tourist destination. Security has a direct relationship to both the economic growth and development and tourism.

There have been cases where locals have attacked and robbed tourists of their belongings and in such cases, tourist operators do not recommend for such destinations. Tourism sector is very sensitive to security matters and it is always recommendable for governments to ensure that effective security policies are in place for assuring tourism safety.

Thirdly, economic growth and development of a tourist destination is an important factor used in determining a tourist destination by the tourism operators. Economic growth and development is the mother of all other factors of tourism destinations, but looking on the trend, economic recession implies that economic growth is deteriorating and hence a threat to tourism.

In such situations, foreign investors pull out of markets, thus causing a major blow to economic stability. Worst still, economic recession often leads to political instability and in case of economic stability and boom trends, tourists are attracted into an economy.

The fourth important factor of tourism is the nature of the hospitality industry at the tourist destination in question. This aspect mostly affects leisure tourism whereby tourists demand an environment that is peaceful for relaxation. Hospitality is necessary for assurance of security and goodness of wellbeing to tourists (Visit Britain 2013.

It is important to have excellent hotels that are located nearby the tourist attraction sites in order for tourists to consider such a tourist destination. Hospitality industry is directly related to the economic growth of a country for an economically stable country is capable of offering high quality hospitality services to tourists.

The world’s most developed countries are leading in the hospitality industry, as they are capable of building excellent hotels that offer excellent accommodation facilities to the tourists (Durbarry 2004). This case is very different for most of the third world economies.

The fifth crucial economic factor that affects tourism is the infrastructural conditions in the tourist destination countries. It is necessary to have good infrastructure at the points of tourist accommodation, which would include availability of power, clean water supply, and excellent transport network.

In addition, health infrastructure is also a matter of concern for tourists and it should be considered when selecting the tourism destination. The developed nations are better placed for the provision of good infrastructure that is necessary for tourists than their counterparts.

Tourists require excellent facilities that meet the international standards; unfortunately, such facilities are not easily available in the third world countries (Mason 2002). Third world countries are often forced to allocate more funds to developing the tourism industry than other crucial sectors and thus creating an imbalance of government spending, but the case is different for the developed countries.

The sixth economic factor that affects tourism is the nature of tourist attraction sites in a given destination. For the case of leisure tourism, a tourist is often motivated by the nature of attraction sites at the destination. In the modern world, few tourist attraction sites are in their natural states, thus implying that economic conditions have contributed in the development of major attraction sites in the world (Dieke 2004).

Third world countries enjoy the natural tourist attraction sites such as wildlife, sunny and sandy beaches, and attractive geographical features. Various studies indicate that these countries have done very little to modify these sites from their natural states, but done a lot to conserve them (Cunado & Garcia 2006).

However, the case is different for the majority of developed countries that have artificial tourist attraction sites such as artificial islands, hotels, and mega structures. The difference between the two classes of economy has played a major role in the development of tourist attraction sites.

The seventh economic factor of tourism is the foreign exchange rates at the destination. Foreign exchange and bank interest rates are in most cases determined by demand and supply of foreign exchange in an economy (Greene& William 2000). This aspect has a direct effect to the cost of tourism in a destination.

For the cases of strong local currency, the foreign tourists are required to pay for goods and services and hence may evade such destinations. Studies have shown that third world counties are the cheapest destinations for foreign tourists as they often have weaker currencies when compared to the currencies of the developed countries (Raymond 2001).

This aspect explains the major reason why tourists rarely visit economies with strong currencies as they have expensive goods and services to customers. However, the case is different for first class hotel industries, which have standardised the costs of services.

The eighth economic factor that affects tourism is the social factors that have direct effects on the tourism industry. Social factors include health of the locals, public hospitality, and social development in terms of literacy. Social wellbeing depends on the state of a country’s economic status and thus this factor is linked to economic determinants of a tourism destination.

A flourished economy often has good social wellbeing that is conducive for tourism activities in an economy. A country that cannot ensure good health for its citizens cannot be recommended as a destination that is conducive for tourism due to exposure to health risks.

Countries whose citizens are known to be welcoming to tourists such as Kenya are more likely to attract tourists than those countries whose citizens are not welcoming.

Literacy level is crucial for the tourism sector as tourists use international languages for communication (Cunado & Garcia 2006). Illiteracy hinders effective communication between tourists and the locals and this aspect could discourage tourists from visiting a destination.


The growth and development of tourism depends entirely on the economic and development of a tourist destination.

However, other crucial factors affect tourism, and such factors are more related to the social and political aspects that also have a direct relationship with the economic growth and development of a destination. It would be prudent to state that tourism is largely determined by economic factors since economic factors determine all other crucial factors that are necessary for tourism.

Reference List

Ardahaey, F 2011, ‘Economic Impacts of Tourism Industry’, International Journal of Business and Management, vol. 6 no. 8, pp. 123-145.

Arellano, M & Bond, S 2002, Panel Data Estimation using DPD for Oxford, Nuffield College Publishers, Oxford.

Balaguer, J & Cantavell-Jorda, M 2002, ‘Tourism as a Long-run Growth Factor: The Spanish Case’, Applied Economics, vo.34 no. 7, pp.877-884.

Cunado, J & Garcia, F 2006, ‘Real Convergence in Africa in the second-half of the 20th century,’ Journal of Economics and Business, vol.58 no. 8, pp.153-167.

Dieke, P 2004, ‘Tourism in Africa’s Economic Development: Policy Implication’, Management Decision, vol.41 no.3, pp.287-295.

Durbarry, R 2004, ‘Tourism and Economic Growth: The Case of Mauritius’, Tourism Economics, vol.10 no.3, pp.389-401.

Greene, A & William, H 2000, Econometric Analysis, Prentice Hall, London.

Lokman, G & Hatemi, A 2005, ‘Is the tourism-led growth hypothesis valid for Turkey’, Applied Economics, vol.12 no. 2, pp. 499-504.

Mason, J 2002, Qualitative Researching, SAGE, London.

Raymond Y 2001, ‘Estimating the impact of economic factors on tourism: evidence from Hong Kong’, Tourism Economics, vol.7 no. 3, pp.277–293.

: Demand for Sustainable Tourism 2013, Web.

Todaro, M 2005, Economic Development, Addison-Wesley Publishers, London.

World Bank 2005, World Development Indicators 2005, World Bank, Washington, DC.

2013. Web.

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IvyPanda. (2019) 'Economic factors that affect Tourism'. 28 December.

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