According to Harcombe (2012), tourism can be defined as travelling for business, pleasure or recreational purposes. Different scholars have advanced many other definitions of tourism to introduce or cover different components of this activity. However, in all these definitions, it is evident that tourism is an activity that individuals engage in to escape the daily routine of life.
In the modern world, we relate tourism to accommodation in five stars hotels, a vacation in exotic islands with sandy beaches, camping and driving in national parks and game reserves, as well as visiting famous places of the world, such as the Taj Mahal, the Pyramids of Egypt, the Grand Canyon and so on.
From this description, people always tend to believe that tourism is an activity of the modern days. This assumption is however wrong. Tourism has been existing since the early days of civilization. There are historic reports of wealthy people travelling around the world for fun and expeditions.
In ancient Rome, for instance, the wealthy people used to visit Baiae, a coastal region with beautiful beaches. However, it is after the Renaissance then the Industrial Revolution that people of the middle class began to be actively involved in tourism (Harcombe, 2012). Given these facts, this paper will focus on the impacts that tourism has on the growth and sustainability of the economy.
A Focus on Tourism
The level of tourism has increased at a tremendous rate after the end of the World War II. This trend has been attributed to the increase in disposable income and the rise of the middle class within the population who had disposable money to spend on luxury.
At the same time, the improvement in the transportation sector, presence of luxurious hotels and other accommodation facilities, improvement in security and hospitality and most importantly, the presence of many tourist destinations capable of meeting the needs and desires of different groups of individuals have also played a critical role in enhancing tourism.
It is because of these factors that governments all around the world have been aiming at enhancing tourism in their countries, through respective tourism ministries, boards and agencies.
Tourism has many effects on the society. For instance, tourism has played a critical role in achieving environmental sustainability. Tourism relies on natural resources mainly. Beaches, wildlife, and geological features are some of the factors which tourism is based on. Therefore, through tourism, these resources are managed in an effective, efficient and sustainable manner to ensure that the present and future generations benefit from them.
Consequently, tourism has social and cultural implications. Through the tourist-host relationships, individuals tend to meet, interact and share their values and morals. Tourists usually interact with the natives. In the process of interaction, they tend to borrow some aspects of their cultures. More than often, tourists return home with souvenirs that they bought in foreign lands.
At the same time, some tourists adopt the dressing, cuisine and to some extent the religious beliefs of the native communities that they have visited during vacations. Natives also experience the same trend since they also acquire some aspects of culture and behaviors of the tourists. Due to this fact therefore, it has always been stressed that individuals should adopt and pass on the values and practices that are moral to enhance the sustainability of tourism.
Most importantly, tourism has great economic benefits. According to Stynes (2011), the number of international tourists recorded in 2011 was approximately 983 million. This is one of the highest figures ever been recorded in the history of international tourism representing a growth of 4.6% as compared to 2010. In the same year, international expenditures in tourism were recorded at over $1 trillion (Harcombe, 2012).
In Canada, for instance, tourism had a revenue of $55 in the year 2000 accounting for approximately 5% of the country’s GDP. At the same time, tourism during that year employed 547,000 individuals within the nation. Therefore, tourism has become one of the major earners of revenue in the economies of many nations. Tourism also provides employment and leads to the development of infrastructure. These are essential components in ensuring the growth and sustainability of the economy of a given nation.
Global Impacts of Tourism
In the year 2010, tourism accounted for 5% of the world’s GDP (Bull, 2010). From this analysis and the facts that have been presented in this paper so far, it is evident that tourism plays a critical role in the growth and development of the global economy. It is as a result of this fact that many nations in the world try to enhance their tourism sector as a move to achieve high economic growth and development.
Tourism supports the economies of nations by acting as a source of foreign exchange. At the same time, tourism provides employment to the native communities of the host nations either directly or indirectly. Furthermore, tourism brings about the growth and development of infrastructure to support the service.
As a result, tourism activities play a critical role in bringing about modernity, especially in developing nations. For tourists to enjoy their stay in a given destination there needs to be effective transportation and communication services, hospitality services, security, a stable banking system and other amenities. On these grounds therefore, governments need to develop these infrastructures and amenities in order for their nations to be regarded as the leading tourist destinations in the world.
However, according to the studies that have been conducted, the impact that tourism has on the economy of a given nation is diversified. For instance, in his book, Bull (2010) asserted that tourism plays a critical role in supporting the national economy of developing countries as compared to the economies of developed nations.
The report presented by the Organization for Economic Co-operation (OECD) stated that although 70% of the global revenue received in the global tourism sector originates from developed countries (OECD, n.d.). Despite this fact however, these nations still do not regard tourism as a profitable venture.
The economies of developed nations are usually based on the industrial sector and the service industries. Given the fact that these nations have a strong internal market and their export markets are viable, their balance of payments is usually high. The scenario is however different in the case of developing nations where the economy is predominantly based on agriculture.
In these nations, the wealth difference between the rich and the poor is always high due to uneven distribution of wealth and national resources. As a result, the domestic industry of developing nation usually lacks the purchasing power required to support local industry, hence increasing the level of international imports to sustain the economy. As a result, these nations usually have a negative balance of payments where the cost of imports exceeds the revenue of exports.
As it has been stated in this paper, developing nations need to transform their economy to be based on industry and the service sector to achieve medium to high economic levels of growth. To achieve this goal, the governments of these nations need to encourage and sustain a lot of investments to sustain industrial growth. At the same time, the government needs to improve on its service industry. This includes developing service industries such as banking and finance, transportation, healthcare and so on.
To achieve all this however, developing nations need to have strong financial backing to support the capital investments that are required to establish and maintain these industries. Seeking for foreign aid and loans has been one of the main avenues that the governments of developing nations have turned to in order to achieve these development needs (Bull, 2010).
At the same time, developing nations have turned to tourism as a source of foreign exchange and revenue to sustain their economic plans (Bull, 2010). Developed nations also have turned to this scheme to enhance economic growth but on a local level, especially in rural economies that have abundant natural resources and scenic views.
The fact that developing nations rely a lot on tourism as a source of foreign exchange has played a considerable role in the development of tourism in the last 30 years (Stynes, 2011). Most nations in Africa, South East Asia and Latin America rely on tourism for economic sustainability a lot.
It is as a result of this fact that tourism countries such as Kenya have become the main foreign exchange earner surpassing traditional exports from agriculture and other industries (Stynes, 2011). Therefore, the governments of developing nations set up and sustain economic investment projects to achieve the short, medium and long-term goals and objectives while using the revenue earned from tourism.
Due to the viability of tourism and its high potential, many developing nations have come up with policies that help enhance the growth and development of the tourism sector. As a result, tourism has become one of the leading industries that support the economies of most developing nations in the world. This is because, tourism not only earn developing countries the much needed foreign exchange but it also acts as a source of employment.
Unemployment is one of the major economic problems which developing nations are facing. In developing nations, unemployment affects mainly the youths that move to urban areas in search for employment opportunities. Rural-urban migration in developing nations reduces the work force that is required to sustain agricultural activities that are mainly based in rural areas.
As a result, this movement not only reduces the level of agricultural exports in the nation, but also reduces food availability. Consequently, a high influx of unemployed individuals in urban areas leads to the development of poverty, and rise of social ills, such as prostitution and insecurity.
Thus, the fact that tourism offers employment either directly or indirectly in developing nations has played a critical role in solving some of the economic problems that developing nations are facing. Through tourism, individuals are employed as tour guides, national park and game reserve managers, and as hotel employees, tours and travel staff.
Tourism also offers indirect employment, especially in supporting industries developed by local communities such as curio shops. Consequently, the money raised from tourism is used to support local projects especially in rural areas through building schools, hospitals, roads and other public amenities. Thus, the level of poverty in developing nations has been reduced considerably with the aid of tourism.
Economic Impacts of Tourism
Apart from providing foreign exchange to the economy of a given nation, other features of tourism play a critical role in sustaining the economy of a given nation. Being a service industry, tourism offers invisible services to its consumers.
The nature of the tourism industry therefore can be compared to that of the transport industry, healthcare industry or the banking sector (Bull, 2010). Therefore, the services offered by the industry occur at the point or the country where they are produced. In the process therefore, consumers enjoy the service at their tourist destination sites at the minimum price possible.
The price associated with tourism is set on the free on board (FOB) basis. However, if tourism could be exported to the home countries of the consumers, then the service would cost much more given the fact that the prices would include the cost, insurance and freight (CIF). Additionally, the service would incur several taxes such as custom duty before reaching the final consumer.
It is as a result of this fact that most imported goods cost more in destination countries as compared to the countries that they are manufactured in. Therefore, given the fact that the cost of tourism is set at FOB, the service is usually offered at the best price in the market. Due to its affordability, the demand for tourism has always been increasing. This phenomenon has made tourism to be one of the most profitable ventures in the world comprising about 5% of the worlds GDP in 2010 (Bull, 2010).
Consequently, tourists need to utilize additional services and amenities to enhance the holiday experience in their destination areas. Therefore, host nations need to ensure that they have adequate facilities that can sustain the wants and needs of the tourists who have visited their nations.
Tourists require effective accommodation services to enhance their stay in a given area. At the same time, for tourism to be sustainable, it needs to be supported with effective and efficient transport facilities, healthcare services, retail services, banking, finance and insurance services and so on.
Therefore, the introduction and development of tourism has not only enhanced the economy of the host nations from the revenue that is earned from the venture, but has also facilitated the growth of other industries as well. Given the rapid expansion of tourism, host nations, especially developing countries, find it difficult to meet the needs, desires and wants of tourists with their available facilities and infrastructure.
In this respect therefore, it was important for these nations to build new infrastructures and develop existing ones to meet the needs and desires of the tourists who were visiting their nations. This move has not only supported tourism in these nations, but it has also played a critical role in the modernization of host nations, as well as enhanced the process of economic growth and development.
With effective infrastructures in place, other processes and industries within the nation are improved. An improved transport system improves the efficiency of transporting goods and services within a given nation. A strong security force protects a nation from internal and external threats.
Consequently, the presence of a strong and reliable banking industry will result in the availability of credits and enhance a saving culture that will assist in the growth of small and medium scale enterprises (SMEs). Thus, facilities that were developed to sustain tourism end up in developing and supporting other industries resulting in the economic growth and sustainability.
Economic Reality of Tourism
In this paper, it has been identified that tourism plays a critical role in growth and development of the economy of a given nation, especially in developing nations. Tourism achieves this by earning foreign exchange, triggering the development of the infrastructures of the host nation, providing employment and supporting the development of trade and other industries.
However, this is just a vague description of how tourism affects the economy of a given nation. Thus, to understand exactly how tourism affects the economy, it is essential to conduct a multiplier analysis (Harcombe, 2012).
The impacts that tourism has on the economy of a given nation cannot be measured by the amount of money they spend or the benefits they receive, but through the impact this revenue has on different realms of the economy. When a tourist spends money in a hotel for example, part of that money is used by the hotel to pay its employees, to purchase goods and services that are required to sustain the operations of the economy and so on.
Consequently, employees will use their salaries to pay rent, basic expenses such as school fees, food, and so on. The landlord on the other hand will invest the money earned in other activities, probably in a welfare association or a local housing scheme. This is just but an example of how the money from tourism penetrates into the economy of a given nation.
According to the multiplier effect, the expenditure by a tourist to enjoy the goods and services of a host nation is regarded as Frontline expenditure (Harcombe, 2012). Here, the tourist is engaged in spending activities such as transport and accommodation, food and entertainment, clothing, gifts and souvenirs, healthcare and other miscellaneous expenses. According to this analysis, this form of expenditure has direct effects on the economy of a given nation.
Therefore, this expenditure as a form of expenditure is referred to as a direct multiplier since it has a direct effect on the economy. For economic growth to be achieved, the value of Frontline spending of tourism should always be higher than the cost required to import the goods and services to sustain the tourists’ experience (Harcombe, 2012).
On the other hand, hotels, travel agencies, national parks and game reserves receive money directly from tourists. However, these agencies and organizations need to purchase goods and services within the local economy to sustain their operations. For instance, a travel agency will need to employ a workforce in different departments to sustain the needs and requirements of tourists while they are at their discretion.
The firm will also need to purchase tour vans, fuel and service them and most importantly, pay taxes to the government. This level of expenditure is referred to as indirect multiplier effect since the money earned from tourism is spent indirectly within the economy. At this point, it is essential to state that not all the money earned from the Frontline spending is analyzed in the indirect multiplier effect since some of this money might be lost in the form of savings, taxes, import and excise duties.
The induced multiplier effect is the final level of this analysis. Induced spending is used to refer to the money that is spent on paying the wages of employees who work in the firms and agencies that are involved in tourism. Additionally, these firms pay out the profits earned to their shareholders in the form of dividends. Some of this money is put into savings. Thus, the expenditure of the employees, shareholders or any other individual at this level also triggers economic activities within the economy.
From this analysis, tourism plays a critical role in enhancing and maintaining the economy of a given nation either through direct, indirect or induced multiplier effects. On these grounds therefore, it is evident that through tourism, many other economic activities with a given economy are initiated and sustained.
Thus, the assessment of all these realms of expenditure is essential for the true economic impact of tourism on a given economy. Multiplier analysis is an effective tool to ascertain the overall performance of the tourism industry. The data and information gathered from this analysis are essential, especially in the process of decision making to determine the short term and long-term policies and strategies that can be implemented to sustain the tourism industry of a given nation and its economy at large.
Negative Impacts of Tourism from an Economic Perspective
This paper has effectively covered the positive impacts that tourism has on the economy of a given nation. However, this is not always the case as tourism has effects that might be detrimental to the economy of a given nation. One of the main problems that have been associated with tourism is the increased need for importing goods from overseas to meet the needs of the tourists. Tourists always want to have a home experience in their travel destinations.
As such therefore, host nations need to provide perfect conditions to meet the needs and wants of the tourists. For instance, tourists might require luxurious hotel rooms, their home cuisine and additional amenities in the course of their stay at their host hotel. To meet all these demands, host nations have to import all these goods since they might not be locally available as in the case of small tourist islands. Thus, the cost-revenue margin from tourism is highly reduced.
In this paper, it has been identified that tourism plays a critical role in developing and sustaining the global economy. Due to this fact, there are governments that strongly depend on tourism as the main source of revenue in their economies.
This trend is mainly experienced in developing nations that regard tourism as the main source of foreign exchange hence supporting their economic goals and objectives. High risks have always been linked with the dependence on one industry to achieve economic sustainability. The world experienced a high level of inflation between 2008 and 2010.
During this time, the amount of disposable income has been greatly reduced while the price levels including the costs associated with tourism increased. As a result, the revenue earned from tourism has been reduced during this period. At the same time, tourism is a seasonal industry. During the low season, the revenue earned in this industry is usually low leading to firing employees to reduce operating costs.
Consequently, to ensure that tourism become a profitable and sustainable venture in a given economy, the host nation needs to develop its resources and infrastructures. However, a huge proportion of the profits that might be accrued from these investments usually leaks out of the host nation hence reducing the viability of tourism.
Over the years, tourism has grown to become of the leading global economic activities. As a result of its success, tourism plays a critical role in the growth and development of the economy at local, national and international levels.
The venture not only earns host nation’s revenue, but also plays a critical role in providing employment, developing infrastructures and sustaining the growth and development of other industries. Despite its shortcomings, tourism plays a critical role in modernization and economic development. Therefore, measures need to be put in place to ensure that this venture is profitable and sustainable in the short run and in the long run.
Bull, A. (2010). The Economics of Travel and Tourism. Melbourne: Longman.
Harcombe, D. (2012). The Impacts of Tourism. Web.
OECD. Economic Impacts of Tourism. Web.
Stynes, D. (2011). The Economic Impacts of Tourism: A Hand Book for Tourism Professionals. Chicago: Sage.