Handout 5

Economic Dimension of Sustainable Tourism

Economic Tourism Impacts

Tourism contributes greatly to a nation's economy. Economy refers to the system of production, distribution, and consumption of goods and services within a society. It involves all economic activities and institutions that contribute to the overall wealth and financial stability of a country or region. In the case of tourism, the economic activities are the operations related to service provision in hotels, restaurants, destinations, travel agencies, and other sectors.

Tourism products are sold to people interested in travel, which generates profit for both the private and public sectors. It boosts local economies by supporting various industries like hospitality, transportation, and retail, leading to a ripple effect of economic benefits. The taxes and fees collected from tourism activities contribute to the government revenue, which is reinvested in public services and infrastructure, thereby enhancing overall development.

In the Philippines, the Tourism Act of two thousand nine declares tourism as "an indispensable element of the national economy and an industry of national interest and importance, which must be harnessed as an engine of socioeconomic growth and cultural affirmation to generate investment, foreign exchange, and employment." This means that tourism is crucial for the country's economy and should be used to boost growth, create jobs, and attract investment and foreign money.

Tourism Multiplier Effect

Tourism can contribute to the economy through the tourism multiplier effect, the economic impact of tourism that extends beyond the initial spending by visitors. The tourism multiplier effect refers to how many times the money spent by a tourist circulates in a country's economy and benefits the other sectors and its people. The following are the pathways of the tourism multiplier effect:

The direct effect happens when tourists' money is spent on tourism-related products (accommodation, transportation, food, and attractions). These spending activities benefit industries directly connected to the provision of tourism products and services. The main sources of tourism spending come from domestic travelers and international visitors who spend money while traveling. This includes things like transportation to a destination, paying for a hotel room or rental car, buying tickets to visit a tourist spot or see a theater show, and paying for meals at a restaurant.

An indirect effect occurs from the intermediate consumption by the suppliers of tourism goods and services. For example, a hotel needs to buy supplies such as linens, cleaning products, and furniture. The businesses that sell these items to the hotel also benefit, as they generate income from these sales. Additionally, those suppliers need to purchase their raw materials, such as fabric for the linens or chemicals for the cleaning products, which creates new rounds of indirect impacts along the production chain.

The induced effect is driven by the spending of people who work directly or indirectly in the tourism industry. This includes their expenditures on food, beverages, clothing, and recreation. An example of the induced effect is when a hotel staff spends their wages on groceries or dining out, which supports local shops and restaurants, or a tour guide might use their earnings to buy clothes or pay for entertainment, benefiting retail stores and theaters in the area.

The tourism multiplier effect shows how a tourist's trip can have a bigger economic impact on both local and global economies. When tourism is managed sustainably, the money earned can be reinvested in important areas like healthcare or education, creating long-term benefits for society.