Abstract
The paper looks at the relationship between tourism and economic development through a holistic lens. It was found that tourism leads to economic development in host nations through job creation, the multiplier effect, infrastructure development and improvement of business conditions.
In certain circumstances, however, tourism may undermine economic development through tax increments, inequality, inflation pressure and environmental problems.
Economic development also sustains tourism by taming foreign exchange fluctuations, enhancing the cost of living, creating a sustainable business environment and offering high quality goods and services for tourists.
Since tourism and economic development are codependent, it was suggested that governments should promote tourism in order to foster economic development.
Investors and government bodies should also work on their economies in order to create a sustainable business environment for tourism.
Introduction
Tourism contributes to the GDP of developing and developed nations tremendously. Stakeholders need to know how this occurs in order to increase its effects. On the flipside, the success of tourist activities also depends on the economic situation of a country, so governments need to work on this aspect, as well.
How tourism translates into economic development
Tourism increases revenues earned in a country. For instance, if a country receives approximately 1000 tourists who spend $ 100 daily, then the country could enjoy $100,000 increases in daily revenue. If the country can sustain that expenditure over 3 months, then it can enjoy approximately $9,000,000 worth of revenue over that period.
Consequently, retail centers, amusement parts, hotels and other recreational industries will enjoy part of that 9 million. However, since businesses need to purchase imported supplies then perhaps 30% of those earnings would be used to offset that income.
The remaining percentage remains in the country and facilitates creation of tourism jobs or profits enjoyed by entrepreneurs. Therefore, a country would develop its economy if it invested in the tourism industry (Stynes 3).
Aside from direct revenues, there is multiplier effect that arises from tourism as an economic activity. After receiving the above mentioned amount of revenue, tourist employees in the concerned country will use the amount they earned from wages and salaries to purchase services and goods.
As a consequence, more businesses in the nation will benefit from the tourist activities. Jobs will also be created for those individuals selling goods and services to employees in the tourist industry.
Therefore, one dollar earned in revenue from tourism leads to a multiplier effect of more jobs and sales in other industries.
UNEP (421) explain that tourism allows countries to harness their cultural heritage, natural landscape, and biodiversity in order facilitate development. It is through this platform that countries can convert what they are endowed with into tangible employment opportunities.
Since tourism relies on labor quite intensively, then this can provide an opportunity for disadvantaged groups or the unemployed to become entrepreneurs. This is an industry in which micro enterprises thrive; making handicrafts, jewelry and other small commodities is synonymous with it.
Products of tourism span across a wide array of industries ranging from transport, infrastructure, agriculture, energy to art. Consequently, financial benefits can spread across different areas of the economy.
Tourism also manifests itself in the form of improved investment in facilities like roads, energy and water supply. Before tourists can visit any nation, they need access to it through airports. Tourist-dependent nations often have many air transport hubs.
Furthermore, those visitors will expect to enjoy certain basic comforts such as street lights, good sever systems, and good roads. While these amenities may be prevalent in developed nations, the same is not true for underdeveloped ones.
Countries interested in growing their tourism industry will need to build their infrastructure. The effects of these endeavors will trickle down to other members of the society. Whole populations can utilize these facilities and thus improve their quality of life.
With regard to the poverty cycle, this industry employs the youth and women in large numbers thus fostering independence. In fact, many households are able to break out of the poverty cycle owing to their participation in tourism.
Several authors have carried out case studies on the benefits of tourism in the economy by analyzing their effects on particular countries. Proenca and Soukiazis (200) did an investigation in Portugal concerning the relationship between bed capacity and regional economic growth.
Here, it was assumed that bed capacity was indicative of the intensity of tourism in a region. The researchers found that for every percentage increase in accommodation capacity, regions experienced a 0.01% in their per capita income.
Therefore, the authors proved that tourism does indeed translate into greater economic growth. Conversely, one can prove that tourism enhances economic development by analyzing the rate at which countries depend on tourism over other areas of the economy.
Lanza and Pigliaru (12) showed that countries with many natural resources and a sizable labor force gave them a comparative advantage in tourism over others that did not have these resources.
When one contrasts countries that have these features and focus on tourism to countries that specialize in manufacturing, it is evident that the former countries grow their economies at a faster rate than the former ones.
Therefore, tourism performs better than other conventional industries with regard to its capacity to grow economies. The same pattern is repeated when one compares small nations that depend on oil production with large ones that depend on tourism.
Most of the oil-producing nations come from large economies; small countries often record low levels of growth, but when this is combined with specialization in tourism, one is likely to record higher levels of GDP growth.
Therefore, tourism facilitates greater levels of economic growth for small economies (Ivanovi and Webster 22). The same observation is not prevalent in large economies that are already developed even though tourism thrives there.
Therefore, several factors that demonstrate the existence of a robust tourism industry eventually lead to higher economic growth. The prevalence of higher economic growth amongst these small, tourism-dependant nations stems from their use of foreign exchange earnings to offset their balance of payment.
They also use the same revenue for management of their national debt. It is easy to translate these payments into sizable economic returns because the economies of scale are small for such nations.
It is also easy for these countries to take some of their foreign exchange and use it to import resources and capital. As a result, net increases in their economies will be high.
Tourists require certain goods when they visit target countries. Sometimes this may lead to an increase in the choices available to local consumers.
If the goods happen to be of a high quality, then local producers may be prompted to enhance production. Higher competition increases economic outcomes and thus prosperity in the country.
It is possible for taxes to reduce owing to tourist activities. If a country or region heavily depends on tourism, it may tax tourism-dependent businesses heavily and reduce the amount it expects to get from other local businesses.
As a result, local communities may benefit from the development of roads or schools without necessarily paying a high amount of tax. It should, however, be noted that sometimes the reverse may occur.
If infrastructural needs required to cater for tourism are excessive, then locals may experience greater taxation. Regardless of the latter, one can still acknowledge that tourism may benefit an economy by improving the tax rates (Stynes 4).
Generally, one may understand the effect of tourism on the economy through a theoretical model known as the export-led growth hypothesis. In this theory, economies of nations grow as a result of increased export, capital and labor within a country.
Exports are particularly useful to countries interested in growing because they allow them to take advantage of economies of scale (Lim 70). International businesses do not have to depend on local communities for production as they can distribute production across a myriad of regions.
This leads to cost savings and greater profitability. Export expansion also leads to greater economic development through technical knowledge diffusion. Those concerned will get access to greater expertise and this promotes the growth of economic activities.
It is likely that when a country does more exporting than importing, then chances are that there will be greater competition among those concerned. Since tourism is a form of export, then this explains why the activity fosters economic growth (Risso and Brida 178).
Economic development leads to tourism
Not only does tourism lead to economic development but the reverse may also be true; economic development fosters tourism. As an industry, tourism is unique from conventional understandings of what an industry is.
In economics, for an activity to become an industry, it must employ the factors of production, such as land, labor, and capital, in order to make products.
It must also use certain variables in order to participate in the production process. The major problem with this approach is that it does not factor in service-oriented sectors, of which tourism belongs. The latter industry heavily relies on labor and offers services to a number of foreign and domestic economies.
Tourism incorporates the use of goods and services in order to meet needs of clients. Nonetheless, production and consumption still occur when participating in tourism. Visitors who enter a certain country will do so for business or pleasure.
Those who come for leisure will solely consume while those who visit a country for business will consume as well as produce. Therefore, one cannot classify tourism as an explicit production or consumption good.
Another feature that distinguishes tourism from other sectors is the fact that consumers must transport themselves to the concerned location and not the other way around. Conventional sectors like manufacturing often involve taking conventional products to consumers.
This means that it can be regarded as an import in certain dimensions. However, because of the foreign exchange earned, the industry is also an export one.
All these differences in tourism as an industry imply that its contribution to the economy of a country or region is quite multifaceted.
Regardless of how one looks at the industry, it still depends on economic development as a prerequisite to success (Vanegas and Croes 960).
Globalization has infiltrated almost all industries and tourism is no exception. Since transportation cost is an important consideration for most visitors who are thinking about entering a country, then they must incorporate the amount of expenditure that is required to get to a host country.
This means that if the income of potential tourists is low, then chances are that less travelling will occur. For an economy to grow in a country that depends on tourism, it must depend on visitors from countries with relatively stable income streams.
Therefore, economic development in target countries (nations that act as consumers) can foster tourism. Unlike certain consumer goods that can be sold in any country regardless of its income, tourism will sell greatly in economically developed nations as these consumers have the financing needed to enjoy tourist activities.
Additionally, because the industry is perceived as a luxury in certain respects, then the concerned entities must be able to afford luxurious items. This further proves that economic development affects tourism because consuming countries must be economically prosperous (Ghartey 5).
Prices of commodities and services in a host country affect how many visitors it gets. Additionally, even the cost of living in a country will alter the number of people who come to visit.
Economic difficulties will usually manifest themselves in terms of a high cost of living. Additionally foreign exchange rates will also demonstrate how economically prosperous the country is.
Potential tourists will consider these factors before choosing to visit it. Consequently, not only is economic development a prerequisite to success in tourism in countries that supply the visitors, but it also matters in the host country. Certain services are just easier to provide if the economic situation in the tourist country is tenable.
As explained earlier some travelers may visit a host country for business while others may do it for pleasure. Those who target a country for its business prospects will often end up using various businesses in the tourism industry.
International trade is becoming a reality especially in emerging economies such as China and India. The need to transact with these countries fosters business travel and foreign exchange earnings.
Therefore, countries with a robust trading platform have high numbers of business travelers and high earnings in tourism. Such nations will usually report positive economic figures and balance of payments.
As a result, one may say that economic development, as seen through high rates of international trade, leads to a thriving tourism industry (Fayissa et al. 18).
The sustainability of tourism is highly dependent on investment in economic activities. Pro development tourism is an approach to tourism that entails securing economic development for locals in order to make tourism sustainable.
In order to prosper in any industry, businesses have to engage in practices that attract consumers. The same fact is true for tourism and potential visitors. This industry is highly dependent on employees that are highly educated.
It also thrives in areas that have convenient access to health services as well as a sound energy, transport, communications and water networks. Not only do tourists expect to enjoy these benefits but locals also stand to gain from them.
Developers, operators, hotel owners and investors need to embrace the fact that risks and opportunities abound in tourism, and investment in the economy will lead to greater prosperity within the chosen country.
If these business players respond to the economic needs of the local community then they will continually meet tourist expectations about the condition of their locations. As a result, such companies can enjoy repeat business and long term success (Goodwin et al. 6).
Working on the economic situation of a certain locality works for investors in tourism because it will improve the business environment. If all the business stakeholders in a tourist destination work together in order to boost economic development, then they will minimize the cost of doing business in that destination.
These stakeholders will gain access to benefits that they initially would have foregone if they were acting alone. Business entities can also benefit from sustainable tourism if they invest in the economy of the host nation by creating a standard that they abide by.
These individuals will have compliance guidelines that will assist in maintaining high industry standards and eventually greater returns. Industry stakeholders who take charge of their economic environment will also minimize the risk of legislations and interventions by national bodies that may disrupt or run them out of business.
As a result, one can assert that tourism is dependent on economic development owing to the business environment created and the prospects for sustainability (Kim et al. 920).
Investing in regional or local economies through infrastructure, local sourcing and employment opportunities enhances the image or brand value of a certain organization. The concept of reputation risk is closely associated with the latter statement.
Reputational risk management involves providing consumers with more than tangible aspects of business. For instance the experience of most tourists is much richer than what can be offered as transport, accommodation or even sightseeing.
Further, products obtained by tourist players go beyond what businesses manage within the supply chain. As a consequence, tourist investors can increase their brand image or minimize business risk by improving economic conditions in their localities.
Fostering local economies by businesses also makes the tourist landscape work well for stakeholders because it fosters goodwill among the masses. When locals enjoy a greater livelihood as a result of investment by tourism stakeholders then they will support the very existence of the business.
Thriving tourist businesses cannot exist in environments where local communities are resentful against them (Dritsakis 310).
It is quite expensive to work in a place where protests and demonstrations against a certain institution are common. Businesses can prevent the occurrence of this situation by working on the local economies of their tourist locations.
Tourism is dependent on economic development because the industry will have a stable pool of employees from which to hire their staff. Good economies tend to have highly motivated workers who go out of their way to educate themselves and enhance their skills.
Consequently, companies that work on the economies of their local operations will benefit from it by having high quality staff to select. They will also reduce costs in continually hiring and training new staff.
Inequality: who really benefits
Although economic development is highly likely amongst countries that have a thriving tourism industry, there are certain situations in which economic development may not be felt by all concerned parties.
For instance, hotel owners benefit greatly from tourism activities because most accommodation businesses are created for these entrepreneurs. In a country such as Malaysia where tourism contributes a large share of the GDP, only 11% of the earnings from this sector reach locals and small businesses.
Additionally, crafts artisans only access 5% of those earnings. Most of the income goes to large hotel owners and similar entrepreneurs (TPRG 12).
Cases of inequality or poor distribution of wealth depend on the nature of the economy in a certain country as well as its business structure. For instance, a country such as Tanzania has more imports than exports.
Therefore, even a smaller portion of income from tourism is enjoyed by locals compared to Malaysia. 10.2 % of all earnings generated in tourism are captured by members of this demographic group.
Tanzania mostly gets its tourism supplies externally; additionally, quality staff members also come from other countries. This prevents locals from participating in creation of wealth.
In contrast to the above mentioned examples, a country such as Panama manifests a very different pattern. About 56% of all earnings from tourism in this country are enjoyed by locals with moderate means. However, the proportion of the people who enjoy it are those who come from tourism-dependent regions.
Poor people in Bocas del Toro enjoy about 43% of the income because this a tourist region. However only 19% of the income earned from tourism in Chriqui province goes to the poor because the economy of that region does not depend on it.
Therefore, the case for economic equality from tourism in many developing nations depends on a series of factors. First, supply chains need to incorporate the locals. Further, skill levels and the composition of the labor market will determine whether tourism would lead to greater benefit among the poor than among other groups.
Additionally, one must consider the composition of the entrepreneurial sector; if microenterprises thrive in a certain country then chances are that locals will also benefit (Mitchell and Ashley 77).
Some unwanted economic effects
While tourism may cause increases in the rate of consumption of goods, sometimes this may lead to unwanted effects. For instance, external sourcing of supplies needed for use in the tourism industry may lead to an imbalance in the imports and exports of a country.
Nations that lack the resources necessary to support visitors may witness higher levels of importation occurring due to an increase in tourism. Earnings from tourism activities may not be enough to offset the imbalance in trade that has arisen from the purchase of imported commodities.
Additionally, when excessive numbers of tourists are reported within a certain country, then a country’s tour operators or other related businesses may not be able to meet the demand for services and goods from them. The overall result is high inflation pressure, which may persist over the years.
Economies of these countries may become casualties of unmet demand in tourism (Ghartey 8). Inflationary pressures may also manifest in the housing industry through fluctuating prices seasonally.
The challenge of tourism in economic development may also be manifested through taxation. In developing economies, where infrastructural challenges are many, governments may need to invest in construction of roads and the like in order to promote the tourism industry.
The process of carrying out these activities may result in greater levels of taxation during construction. In developed nations, high infrastructural costs may stem from greater taxation needed to cover the service costs of maintaining these amenities.
Therefore, sometimes greater tourism levels may undermine economic performance within a certain country owing to taxation increments (Stynes 5).
Environmental issues have also been cited as another unwanted effect of tourism. This may often result in the underdevelopment of other industries that depend on the same natural resources. As a consequence, economic development may be impeded.
Most tourism activities occur in coastal areas where freshwater is absent or the facilities needed to provide them are lacking. Since tourist businesses cannot compromise on the availability of water, many of them may secure it through any means necessary.
This may result in appropriation of water needed for agricultural use. A case in point was golf tourism in a Mediterranean Island. The concerned industry needed water for irrigation of the courses. Since water was scarce in the location, it was necessary to transport it in.
Estimates indicate that the golf course used seventeen times as much water as regular users. After the owners of the golf courses decided to expand the facility, it was necessary to construct them over agricultural land. This was done in order to place desalination plants, which convert salty water into freshwater.
Therefore, the growth of tourism in the Island came at a price; agriculture was undermined in the area and this offset the economic benefits of the gold course.
One can thus assert that the unwanted environmental of tourism weaken critical economic activities. The economic sustainability of tourism may thus be questioned (UNEP 417).
Conclusion
Tourism and economic development are intertwined as they each depend on each other for survival. Tourism can lead to economic development through direct and indirect effects. Direct effects include revenue generation and foreign exchange in a tourist-dependent country.
These effects also include creation of business opportunities that thrive on money earned from tourism or local sourcing of supplies. Indirect effects include better taxation, employment opportunities, improved infrastructure and better quality of goods.
On the other hand, tourism may undermine economic development by creating environmental problems, higher taxation in infrastructure construction and inequality in income distribution.
Economic development also leads to success in tourism by proving better quality goods, improving foreign exchange rate conditions and promoting the sustainability of business in that location.
These results indicate that government bodies as well as tourist stakeholders need to work on economic development in order to foster long term success. Conversely, governments need to encourage tourism in order to boost economic development.
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