2.2 Economic impacts of tourism

Question 1

How tourism impact economy

Answer 1

• impacts both generating and destination regions
• since they are both interconnected
• benefits & disadvantages are uneven across the world, affecting destination and generation regions differently
• impacts destination regions more
  ———
  Positive impacts:
  1. employment opportunities in formal and informal sectors
  2. income generation form tourists’ spending on consumer goods and services
  ———
  Negative impacts:
  1. Economic leakages resulting in less tourism revenue
  2. Over dependence on tourism, increasing vulnerability to a sudden fall in tourist numbers

Question 2

Employment opportunities in formal and informal sectors

Answer 2

• Tourism industry is labour intensive.
• creates a large number and wide range of employment opportunities for people of varying skills in both tourist generating and destination regions:
  1. Transport
  2. Accommodation
  3. Leisure activities
• jobs can be categorised into informal and formal jobs
• reduces national unemployment rates
  ———
  Example:
• In 2019, tourism accounted for 330 million formal jobs worldwide representing about 10% of the global workforce.
• Between 2015 and 2019, about 25% of all new jobs were created by the tourism industry.
  ———
  Formal jobs:
• fixed working hours
• stable income
• sign written contract stating T&Cs of work
• contributes to income tax
  ———
  Informal jobs:
• work irregular hours
• fluctuating wages
• do not sign a written contract
• do not contribute to income tax

Question 3

Income generation from tourist’s spendings

Answer 3

• Tourism generates income for locals and governments in tourist destination regions.
• When tourists spend money on consumer goods and services offered by locals such as accommodation and food, they can increase the incomes for locals.
• Taxes on tourism spending can provide governments with considerable revenues.
• These can be used to invest in improving infrastructure and pay for education and health services, hence increasing the country’s standard of living.
• Through the generation of income, tourism can alleviate poverty as it can transfer wealth from wealthier to poorer regions.
  ———
  Example:
• In the 1980s, Maldives was one of the world’s poorest countries.
• Today, its economy has grown due to the tourism opportunities offered by its natural landscape, resulting in low poverty rates.

Question 4

Economic leakage

Answer 4

• happens when revenue generated by tourism in the destination region is lost to the economies of other countries.
• occurs when tourist businesses in the destination region pay for the imports of goods and services to support the tourism industry
• reduces the revenue from tourism, minimising income earned by locals from tourism.
• Governments will have lesser revenue to improve the country’s standard of living.
• In some developing countries, economic leakages may be so significant that it can wipe out the economic benefits of tourism.
  ————
  Example:
• According to the United Nations Environment Programme, for every US$100 spent by a tourist on a holiday to a developing country, only US$5 remains in the local host community.

Question 5

Overdependence on tourism, which increases vulnerability to a sudden fall in tourist numbers.

Answer 5

• This may occur due to unexpected events, causing the economic benefits from tourism to fluctuate and affecting the livelihoods of people
• These events include:
  1. Natural disasters
  2. Unfavourable political situations
  3. Economic downturn
  4. Outbreak of diseases

Question 6

Natural disasters

Answer 6

• can cause significant damage to tourism infrastructure in destination and generating countries.
• People fearing for their safety may postpone or cancel their travel plans.
  ———
  Example:
• In 2017, parts of the Caribbean Islands were struck by a succession of powerful hurricanes.
• About 95% of the buildings there were destroyed resulting in 1 million fewer tourist arrivals and an estimated loss of revenue of over US$700 million.

Question 7

Unfavourable political situations

Answer 7

• can lead to riots and protests in a country, leading to closure of hotels and tourist attractions.
• People fearing for their safety may postpone or cancel their travel plans.
• Governments may choose to close off the affected area or issue a travel advisory to discourage travelling to the affected areas to ensure safety, reducing the number of tourist arrivals.
  ———
  Example:
• In 2020, there were protests in Thailand against military rule. Several countries issued travel advisories to its citizens to dissuade them from visiting Thailand during that period of time, which reduced tourist arrivals.

Question 8

Economic downturn

Answer 8

• During an economic downturn, the economies of countries are negatively affected.
• Companies would attempt to cut costs.
• People may lose their jobs or experience pay cuts, leading to a reduction of disposable incomes.
• This results in people choosing not to travel to reduce spending.
  ———
  Example:
• The Maldives, which is highly dependent on tourism, suffered a drop of 4% in tourism arrivals in 2009 due to the global economic crisis then.

Question 9

Outbreak of disease

Answer 9

• With disease outbreaks, people may postpone or cancel travel plans out of fear for their safety.
• Governments may choose to close off the affected area or issue travel advisory to discourage travelling to the affected areas to ensure safety, reducing the number of tourist arrivals.
  ————
  Example:
• The COVID-19 pandemic which started in 2019 infected over 205 million people and caused over 4 million deaths.
• Many countries responded by going into ‘lockdown’, causing international travel to shut down.
• In the first half of 2020 alone, tourist arrivals globally fell by more than 65%.
• In the Maldives, tourism arrivals in 2020 was only about a third of arrivals in 2019.