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Economic Impacts of Tourism

The tourism industry just like any other enterprise has positive and negative economic impacts. For decennials, the growth of this industry has contributed to increased economic activities throughout the United States and the globe in general (Stynes, 1997; Cai, Leung, & Mak, 2005). Currently, tourism is the world largest industry outdoing such businesses as arm sales and international oil. It is the dominant economic activity in some countries and communities, such as the Aboriginal community in Australia (Lawson & Williams, 2008). The tourism industry has three principal impacts namely socio-cultural, environmental and economic (some researchers refer political consequences to them) (Davis, Allen, & Cosenza, 1988).  Economically, tourism contributes to tax revenues, employment opportunities and new jobs creation, sales, foreign exchange generation, increased regional development, and the stimulation of income, trade and entrepreneurship particularly in small and service business sectors.  

The economic effects of tourists in places they visit come from the fact that they are attracted by a wide variety of services and goods, and end up spending a lot of money to acquire what interests them. Their expenditure can be considered the introduction of financial resources into the host country economy. This contribution creates new levels of consumer demands, and the host economy has to devise ways of attracting more tourists. Tourism generates the exchange of foreign currency into a local one among visitors in order for them to be able to pay for goods and services in host countries. As a result of this exchange, there is an increase in foreign currency in such countries, spent on their needs and assisting nations in developing economically (Harcombe, 1999; Lindberg, 1991).

There are other economic impacts of tourism that may contribute positively or negatively. For instance, it can influence changes in prices. These can be negative, since tourism can sometimes inflate retail and housing prices in a given region. However, this happens on a seasonal basis (Simm, 2008). High prices in these regions affect locals, since they may not afford them. Tourism can also affect the quality and quantity of goods and services available in an area. The presence of the tourism activity can lead to the production of higher or lower quality goods. Local government costs and revenues are directly affected by this industry. For instance, taxes collected from tourism either directly or indirectly may result in reduced local taxes for roads, schools, hospitals and others. In some cases, locals may be taxed heavily to address added services and infrastructure costs (Lankford & Howard, 1994).

Tourism economic benefits are advertised in strongly positive terms by the industry for a number of reasons. Tourism economic significance makes the industry more respectable among public officials, business community, and the public in general (Stynes, 1997). Therefore, public policies or decisions are generally favorable to the tourism industry. To a great extent, tourism businesses depend on each other, as well as the government, residents of the local community and other businesses. Its economic benefits and costs virtually reach each individual in a region in one way or another. Therefore, tourism economic impacts are of paramount importance for regional, state, economic and community development (Stynes, 1997). Economic impacts are also crucial factors in management and marketing decisions. Therefore, communities should be educated on the importance of tourism for their area or region, including its contribution to the economic activity.     

This section will present an overview of the work done previously that provides the required background for this research. Focus is laid on various economic impacts of tourism and ways of maximizing positive effects and minimizing negative ones.  This section will begin with a thorough coverage of these influences, which will assist in setting the context of this research.

Economic Benefits of Tourism

Adventure travel or tourism is an idea that sustains a lot of benefits in both local and international economies. In tourism, spending money is inevitable, and it boosts the economy. The major economic benefits of the industry have some relations with the earnings from foreign exchange, government revenue contributions, the creation of job or business opportunities, and the generation of employment (Mathieson & Wall, 1982). Various economic impacts that are brought about by tourism are as follows:

  1. Earning foreign exchange. Tourism expenditures include imports and exports. These are related to goods and services that generate income in most host economies. It is the main source of earnings from foreign exchange in most countries (Harcombe, 1999).
  2. Infrastructure investment. Tourism is one of the activities that stimulate the local government to invest in the improvement of infrastructure. Some improvements are done in the creation of roads, electricity, water and sewerage systems, transportation means and telephone network (World Travel and Tourism Council, 2012). It improves the lifestyle of the people living around the area, and facilitates the quality of services offered to tourists. The improved infrastructure increases community spending generated by tourism, which promotes the viability of local businesses indirectly.
  3. Creating employment. It has been greatly boosted by the rapid expansion of the international tourism. For instance, there is a high level of job creation in hotel accommodation sectors. According to Archer & Fletcher (1996), in 1995, this sector created 11.3 million employment vacancies worldwide. Tourism can create jobs directly or indirectly. In the former case, it is done through taxis, restaurants, hotels and souvenir sales, while the latter one presupposes the involvement of businesses that are related to tourism, such as the supply of the required goods and services. Statistically, the industry involves 7% of the employed population in the world (World Travel and Tourism Council, 2012).
  4. Government revenue. The tourism sector generates government revenue, which can be direct, or indirect (Horwath Tourism and Leisure Consulting, 1981). Direct revenue contributions can be generated through taxes on income made from direct charging of tourists, such as departure and eco taxes. It can be also generated through taxing tourism businesses and employment. Indirect revenue contributions are derived from taxes and duties on goods and services that are supplied to tourists, including taxes on restaurants, and duties on alcohol and souvenirs.
  5. Contribution to the local economy. Tourism is a very significant sector in the local economy. The environment is the basic component or asset in the tourism industry, and therefore, the revenue of this sector is normally utilized in the measurement of economic values of protected areas. Some of the local revenues are not quantified easily, because not all tourists’ expenditures are registered formally. The tourism income is generated from the local informal employment, for example, street vendors and informal guides. The most positive thing of such informal unemployment is that money goes back to the local economy (Kreag, 2001). Tourism contributes directly to the conservation of habitats and other sensitive areas. The revenue obtained from park entrance can be assigned specifically to the payment for protection and management of the sensitive areas of the environment. Some governments collect finances from areas that are far to reach, and which do not relate to parking areas directly. Income taxes, user fees, taxes on the rent of recreational equipment, sales and license fees for some activities, such as fishing and hunting, provide funds that are required for the management of natural resources (Manning, 1999; Mirbabayev & Shagazatova, 2002).
  6. Economic diversity. Tourism operators play an economic role, as they highlight a broad spectrum of benefits of tourism brought to the community. The advantages lead to community’s respect and understanding of the great value of the industry. In many communities, economic diversity is one of the insurance policies that stand against hard times (Lankford, Williams, & Lankford, 1997). As tourism has additional contribution to the income, it can also support the community, when traditional industries are in the financial crisis, especially if the nation relies on it heavily.

Ways of Maximizing Positive Economic Impacts of Tourism

Supporting small business. Small businesses are usually supported in order to maximize their output and maximize economic benefits of tourism. These are usually supported by the local and international government. The latter works out on the finances and general operations of small businesses in support of tourism benefits. It assists in marketing and promotions that involve considerable research and statistical information required in order to make any promotions. Most governments offer financial support to small tourism industries in order for them to be able to maximize tourism benefits. They lend loans and other banking products to those businesses taking into consideration interest rates (Cai, Leung, & Mak, 2005; Trejos & Chiang, 2009; Torres, 2003). The government supports small tourism businesses by considering accounting, legal and taxation services. It ensures fairness when dealing with taxation charges. Besides, it encourages small business holders to register and get licenses for their small businesses to be able to avoid daily payments of local fees. This way, a small business operator can reduce daily expenditures and increase profits.

With the developing technology, small tourism businesses are supported through the introduction of online assistance and e-business in general (Ahmed, 2006; Frechtling, 2009). Tourists can book tickets for their flights online, and make their enquiries and get a feedback immediately. The government and private corporations have offered financial support to small businesses to facilitate e-business. In most cases, local governments make initiatives of improvements in tourism occupational health and safety. These are both small businesses and the government that ensure that the safety of a tourist is maintained. It is done through ensuring that tourists are guarded and avoid any kind of physical attacks by employing a lot of tour guides. Health facilities are provided to them together with enough medical personnel, ensuring that medical care is readily available in case of tourists falling sick. It maximizes tourism benefits, since tourists will be aware of proper care that they are likely to get (Frechtling, 2009).

Governments support small businesses in other various ways, which include the issues of imports and exports, insurance, advisory services, tenders and contracts, human resource management, retail leasing guidance and other government regulations (Lejarraja & Walkenhorst, 2007). As far as imports and exports are concerned, the government ensures that small businesses import quality goods and services that will attract tourists in large numbers. In most countries, governments have public sectors that are involved in the assurance of the quality of imported goods and services. Besides, they ensure that small businesses import highly qualified persons with high intellectual services. These hired foreigners are made to understand that they have to deliver quality services to tourists (Adams & Parmenter, 2006).  The government ensures that they have the required documents that allow them to work in foreign countries. Considering export, it ensures that high quality goods and services are exported to foreign countries, which will get interested in the origin of a commodity, and they end up touring to that country promoting tourism benefits. Most governments have come up with training programs that ensure that personnel services will help a foreign country.  

Small businesses are protected through insurance programs. It promotes tourism, because tourists get an assurance of solving any danger problems. In addition, they can rest assured that in case of fire, accidents and other life-threatening dangers are catered for. Most governments provide advisory services in support of small businesses. Organizations that offer such services are funded by the government and can assist small businesses in their operations. They advise business operators on how to plan a business, business marketing, on loans and banking services, developing simple marketing plans, leasing guidance, and on how to access legal services. They also mentor business operators (Daniels & Norman, 2003).  Staffing issues are essential to be considered when supporting small tourism businesses. Most governments have brought forth skilled personnel, which offer skills and train the workforce, since they consider the proper environment, where workers can thrive. It ensures the growth of small businesses and contributes to maximizing the benefits of tourism.

The government offers regulations of most of its services in support of small tourism businesses. Some of them include easing the registration process of small business names. It is done by groups, which represent the human resource management (HRM) team in the government. HRM is also assisting businesses in legal issues, as it guides and offers preventative measures connected with employment, contracts, leases, fair trading taxation, credit and debt recovery, legal customs, and insurance (Lejarraja & Walkenhorst, 2007).

In most countries, governments have started supporting indigenous tourism businesses through providing various services, such as business development, employment and assistance programs (Lawson & Williams, 2008). They also promote this form of small business by providing essential information and resources used to improve this sector. Other services provided by governments include offering subsidizing schemes, building health facilities and educational institutions around a tourism area, and offering emergency services (Manning, 1999). The sustenance of the surrounding environment is worked out through the introduction of a wide range of programs that enable businesses to get prepared for any climate change. It helps them alert their tourists, especially through online services.

Creating backward linkages. According to Lejarraja & Walkenhorst (2007), tourism cannot be defined by a single commodity. It is rather a bunch of inter-related sectors. It is a composite sector that includes a multiplicity of economic activities, such as manufacturing, agriculture and service sectors. Some well-known industries that directly interact with tourism include communication and transportation services, cosmetics and jewelry, textile and furniture, and food and beverages, among others. The economic impact of tourism is easily identified by a new international demand, generated by it in developing countries. Tourism fosters new opportunities for entrepreneurs by creating a diversified foreign source of demand within the borders of the economy of a host country through forged linkages between this industry and other economic sectors. It indicates that tourism holds the potential for economic diversification, since it creates new opportunities for entrepreneurs (Torres, 2002).

Agriculture is a sector, which is the most related to tourism. In fact, many researchers have realized the importance of actualizing backward linkages between these two industries. However, most agriculture and tourism researches primarily focus on hotel food procurement patterns without addressing the principal force that drives hotel purchasing. According to Telfer & Wall (1996),this force is tourist food consumption and preferences. Although literature sources on agriculture and tourism frequently make reference to tourist consumption patterns, in particular a difference based on the type of a tourist and his or her nationality; however, there are limited empirical data available concerning these issues. The research conducted by Bertella (2011) reveals that tourist food consumption and preferences do not present an obstacle to the future promotion of agriculture and tourism linkages. Actually, many Americans are satisfied with food, which they find in countries they tour.

The linkage between local agricultural production and the tourism demand for food should be established in order to maximize host country benefits. Sometimes, the linkage between agriculture and tourism is constrained by several factors, though they vary from region to region. According to the research conducted by Lejarraja & Walkenhorst (2007), it is possible to increase backward linkages between local food production and tourism, but there are some challenges, such as capital and labor, conflict over the competition for land, among others, which should be overcome.

The contribution of tourism to the welfare of local communities in developing countries requires the development of economic linkages (Trejos & Chiang, 2009). Just like any other economic activity, tourism developmental impacts depend on the interactions and nature of backward linkages (suppliers) and forward ones (customers) in the provision of transportation, power supplies, construction outputs, food, and so on. One way of maximizing the benefits of tourism for local communities is to find ways of increasing the utilization of local food products, and if possible, agriculture. In this context, due to tourist reliance on local food, establishing small tourist centers will be more beneficial than larger resorts or hotels, as there is little evidence that international tourism stimulates domestic or local agriculture (Torres, 2003).

Bertella (2011)argues that linkages differ with the type of tourism development. For instance, the study conducted by Slee, Farr, & Snowdon (1997) showed that soft tourism generated a higher local income in Scotland as compared to hard one. Although a hard tourist spent more in volume, his or her spending had to be traded off to maximize local economic benefits. Other research has shown that tourists seeking comfort require luxury imported products and well-catered infrastructure, while backpackers consume locally produced goods and services. Hence, backpacker tourism is considered to have a higher local multiplier and backward linkage effect (Cohen & Avieli, 2004).

The economic impact of tourism may be highly remunerative, if the industry is developed in a way that reduces economic leakages (The George Washington University, 2006). Creating backward economic linkages between tourism and agriculture provides a host economy with an opportunity to propagate economic benefits from the tourism industry into local agricultural enterprises. Such linkages make possible to avoid economic leakages caused by importing food products by restaurants and hotels.

Using development incentives only for projects that have strong local benefits. Intervention of state governments is required to enhance the contribution of tourism to the economic development of a nation. The key role of governments is to set legislative and policy frameworks for tourism. They can enhance the real progress of the tourism sector by applying a wide range of instruments, which were identified by the UNEP and World Tourism Organization (SNV East and Southern Africa, 2007). These instruments are classified into five categories, namely measurement, command and control, economic, voluntary, and supporting instruments (Lynch, 2011). The first category includes the identification of limits, and sustainability indicators and monitoring. Command and control instruments involve land-use planning and development, rules and licensing, regulation, and legislation. Economic instruments include voluntary contribution, financial incentives, property rights and trading, charges, taxation, and pricing. Voluntary instruments comprise voluntary certification, reporting and auditing, and guidelines and codes of conduct. Finally, the last category involves marketing and information services, capacity building, and infrastructure provision and management. Governments should try to utilize these instruments to favor the positive economic impacts of tourism. However, the precise mix of instruments and policies varies depending on objectives, situation, and government structures.

Brand and local market products. Regional branding is extremely valuable, because it assists in promoting local products. It increases linkages between the local economy and tourism. Branding also helps in the market recognition of local products (Meyer, Ashley, & Poultney, 2004). The tourism industry benefits from the development of local brands by intensive marketing of the region and its products, unique shopping and culinary experiences, and offering quality and authentic products. It is possible to create a strong regional product brand by linking tourism with other sectors. Establishing such a brand will make local entrepreneurs gain opportunities for market access and increase their sales. It will also assist in marketing and promoting branded products.

According to Font & Carey (2005),the best technique of encouraging tourists to purchase locally produced goods is to brand them under a regional or local theme. The research by Lynch (2011)indicates that destination marketing organizations (DMOs) play a crucial role in maximizing the positive economic impacts of tourism. They are also referred to as convention and visitor bureaus. These organizations promote a region, city, town or country with an aim of increasing the number of visitors. They promote the marketing and development of a destination, focusing on services, tourism marketing, and convention sales.

DMOs promote the economic development of a host region by intensifying visits of business travelers and tourists. It generates shopping revenues, visits to restaurants, and overnight lodging in a region (Frechtling, 2009). Destination marketing organizations are the most significant tourism establishments, because they are directly involved in marketing a destination brand through tourism and ‘product awareness’ to tourists. These organizations earn a lot of money through indirect and direct taxes and revenues for destinations’ economies with sales and marketing expertness.

Generally, DMOs provide information about destination’s recreation, history, arts and culture, museums, events, attractions, dining, and lodging. Some organizations even provide season-specific activity suggestions, free things to do, forums, photos, blogs, top ten attractions and activity lists, inside trips, bus services, among others. They work with meeting planners and tourists to provide the required information on their local region. Their main goal is to assist in making an attendees’ conference meeting or a visitor’s trip more rewarding and enjoyable experience. Their marketing initiatives are normally achieved through sponsoring other hospitality functions, hosting familiarization tours for the travel industry personnel and journalists, direct sales, distributing collateral and promotional materials, advertising, web pages, and trade association marketplaces (Lynch, 2011). At larger destinations, DMOs often market nationally and globally, while small cities mainly focus on specific niche tourism markets of a region or state.

According to the OECD (2012), establishing a food brand in a region is a great thing to attract tourists. Food cultures are considered to be a key attraction, as they have helped Singapore grow its tourism sector in a tremendous way. However, the problem associated with a food brand is how to communicate it to visitors. The OECD (2012) suggests that tourists should be guided to be able to understand the food culture behind a brand. Meyer, Ashley, & Poultney (2004)suggest that when promoting food, a skillfully constructed guide is required to explain the way to eat each dish, its origin, recipes and ingredients. Therefore, every region that wishes to promote its own food should have a well-made guide of its food culture in order for a traveler visiting that region to be able to understand each particular style of cookery. Bertella (2011) argues that to market food effectively, it must be of high quality and attractive. Attention need to be given to creating a clear image of the region food, maintaining its authenticity, and high quality. He ended his study by suggesting that further research should be conducted to identify whether globalization and localization of food experiences strengthen or threaten local food cultures (Cohen & Avieli, 2004; Bertella, 2011).

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