Economic Impact of Tourism Industry

Economic Impact of Tourism Industry

The tourism industry has contributed to the economic growth of a country through factors like industrialization, education, advanced technology, a higher number of qualified professionals, opening up of foreign markets, liberal trade policies, and better advertising and strategic marketing. The income generated helps the national balance of payments, earning revenue through direct taxation, as well as from indirect taxes on goods and services purchased by the tourists.

This article considers the economics of tourism, taking into account the unique characteristics of the sector and both the positive and negative consequences of tourism for a destination. The chapter is designed to provide you with:

  • An understanding of the unique characteristics of the tourism sector;
  • An awareness of the importance of economic evaluation of tourism and events;
  • An understanding of the ways that tourism can bring economic benefits to a place
  • An awareness of the economic costs of tourism to a destination

Tourism is often described as one of the world’s largest industries. It employs millions of people, has a turnover in billions of dollars, and encourages millions of people to travel. In other words, it is a substantial economic sector and economists bring a level of discipline to its analysis. There is no doubt that economics has made a fundamental contribution to the study and understanding of tourism, evidenced by the establishment of the journal Tourism Economics in the 1990s.  Tourism and related activities collectively boost the economic reserves of the region thus leading to a rise in income and better disposable income. Tourism can also benefit economies at regional and local levels, as money comes into urban and rural areas which in turn stimulates new business enterprises, greater markets and promotes a more positive image of the area.

Economics of Tourism Industry

Economists remain in dispute as to whether tourism is really an industry and, if so, how to define and measure it. In part, these problems arise because many industries are involved in delivering the tourism product as a service or ‘experience’ and tourism has distinctive characteristics that we have to take into account. As a result, research on tourism supply has focused on individual sectors rather than the structure of the sector as a whole.

Tourism is in fact only partially an industry as governments, communities, and others are involved in delivering the tourism product. Tourism is therefore an industry that challenges conventional economic paradigms. Yet it is important that we understand how its complex system functions if we are to manage tourism effectively. Tourism is an increasingly important focus of policy intervention, and of development in many countries, as economic strategies focus on the revenue and employment generating potential of tourism.

Economic Impact of Tourism Industry

Given below are some economic considerations of the Tourism Industry:

  • Tourism is not a single product but a diverse range of products and services that interact
  • The tourism sector is an invisible export as there is no tangible product to show in a balance of payments account
  • Tourism comprises both tangible and non-tangible elements
  • It is produced where it is consumed. In other words, it is one of the few industries where the consumer has to physically visit the site of production in order to consume it
  • The producer does not bear any transport costs as they are borne by the tourist
  • Tourism is a fragmented sector in that it comprises many different types of providers
  • The tourism industry is highly diverse – from the small size of the establishment to big multi-nation corporations
  • The sector is characterized by very unstable demand
  • The tourism industry also contributes to climate change through carbon emissions
  • As an activity of global significance, tourism has economic consequences for enterprises, communities, destinations, regions, and countries. Quite simply, the economic significance of tourism is due to the fact that tourists earn money in their place of residence but spend it at the destination
  • Tourism generates significant revenues, estimated at US$1159 billion in 2013 from international tourism, and generates significant numbers of jobs globally, estimated by the World Travel and Tourism Council at almost 266 million jobs in 2014
  • Economic consequences of tourism are more readily measurable than say environmental or social impacts
  • The ability of the national economy to leverage from the economic consequences of tourism in terms of the capacity to invest in tourism, and whether the level of tourism development is sufficient to allow economies of scale for suppliers


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You may also like Overview of Hospitality Industry | What is Travel & Tourism | Components of Tourism Industry | Types of Tourists | Impact of Tourism Industry | Social & Cultural Impact of Tourism | Challenges in the Tourism Industry | Economic Impact of Tourism Industry | Environmental Impact of Tourism Industry

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