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Tourism and Economic Development
Lecture 7


Define Development

1. Development - considered good or progressive

  • Old definition - real GDP per capita is increasing
    • On average, incomes for the population are increasing
  • New definition
    1. Economic
      • real GDP per capita is increasing
      • Income distribution is narrowing
    2. Social
      • An improvement in health, education, employment opportunities, and housing
    3. Political
      • Human rights
      • Political freedom
    4. Cultural - protection or affirmation of a cultural identity
    5. Environmental Sustainability - ensure that resources used today are also available to the future generations

2. Characteristics of underdevelopment

  • Large portion of population is in poverty
    • Low GDP per capita
    • Low living standard
    • Gap between developed countries and undeveloped countries are widening
  • Economiy is not diversified
    • A country depends on a few industries
  • Large portion of labor force usually 60% works in agricultural and fishing industries
  • Poor health
    • Developed countries have low life expectancies
      • Age 74 for developed countries
      • Age 62 for developing countries
      • Age 51 for less developed countries
    • High infant mortality rates
  • Education - high illiteracy rates
    • Low level of job skills
  • High rates of population growth
    • High birth rates
    • Abundance of labor
    • High unemployment rates
    • High underemployment rates
  • Balance of payments problems
    • High external foreign debts
    • Countries import more than exports, causing an outflow of money from a country

3. Theories of Development

  • Modernization - a country goes through a cycle
    • Country begins as an agricultural society
    • Country adopts manufacturing
    • Incomes and wealth increase
    • Financial institutions arise and become important
    • New institutions may oppose traditional institutions, like the family
    • Usually high savings rate is important, because it drives investment and modernization
    • Problem - United States, and Europe is considered modern, and thus other countries want to emulate them
      • United States and Europe impose their beliefs on other countries
  • Dependency Theory - developing countries are dependent on the developed countries
    • Marxists support this argument
    • North countries – north of equator are rich and capitalistic
    • South countries – south of the equator are poor
    • Three eras
      • Colonial dependence – many south countries were colonies 1500s to 1800s
      • Exported raw materials, food, and resources
      • Vulnerable to volatility in the international markets
      • Imported manufactured goods
      • Creates a trade imbalance because manufactured goods have a higher value
      • Money flows out of colony
      • Keeps colonies in poverty
    • Financial-industrial dependence 19th and 20th centuries
      • Manufactured products made in the North
    • Current
      • Multinational corporations dominate international trade
      • Corporations are based in North countries
      • Have financial power
      • Profits are transferred out of South Countries
      • Circumvent regulations in South Countries


Using Tourism for Economic Development

1. Tourism depends on open, free societies

  • Example
    • Turkey lowered legal restrictions for tourists to enter country
    • Other countries follow suit to encourage tourists to come to their country
  • Countries do impose bureaucratic requirements
    • Visas for Americans, Canadians, and Europeans are relatively easy to come by or not required
    • Kazakhstan requires an invitation letter from a tourist agency within Kazakhstan for tourist
      • A Kazakh Embassy will not issue a visa without an invitation for a tourist
  • Note - September 11, 2001 and heightened national security
    • United States and European countries imposed new restrictions on travel, visas, etc. that hinders tourism

2. Tourism for growth

  • The number of international tourists continue to grow
  • Refer to the Table
Year Arrivals
($ millions)

1950 25,282 2,100
1960 69,320 6,867
1965 112,863 11,604
1970 165,787 17,900
1975 222,290 40,702
1980 285,997 105,320
1985 327,188 118,084
1990 458,229 268,928
1995 565,495 405,110
1998 625,236 444,741
  • Tourism is sensitive to external events
    • OPEC oil crisis in early 1970s
    • Tourism declined to Middle East for the U.S. Gulf Wars in 1991 and 2001
  • International tourists are predominately from industrialized countries
    • Most flows are between industrialized countries
    • Developed countries do not rely on tourism for growth
    • Less flow from developed countries to less developed
  • Maslow's Pyramid - basic needs have to be met before a person scales up to higher level needs
    • Tourism is a higher level need
    • Developed countries have tourists with money

Maslow's Hierarchy Pyramid

3. Difficult to measure impact of tourism on employment

  • Direct employment - most researchers focus on this
    • Hotels
    • Restaurants
    • Tour companies
    • Night clubs
  • Indirect employment - tourists and locals employed in tourism use these services
    • Construction
    • Professionals like doctors and lawyers
    • Merchants
    • Gas stations
  • Induced employment - additional employment resulting from tourism multiplier
  • Skills of local community has influence of type of employment created
    • Some products are labor intensive
    • Other products are capital intensive
  • Backward linkages - supply chain to support tourist industry
    • Tourists create a demand for
      • accommodations
      • food / beverages
      • transportation
      • souvenirs
      • entertainment
    • Could expand demand for local industries to supply tourists industry
      • Farms
      • Construction
      • Manufacturing
    • Cause infrastructure improvements
    • Note - undeveloped countries may import a large share of goods / services needed by tourists
4. Developed countries
  • Tourism is
    • Seasonal
    • Low pay
    • High turnover rate
    • Menial work
    • Low status
    • Alternative employment has better pay
  • Most tourism industry is privately held
    • Highly competitive
    • Market approach
  • Local government and local businesses promote tourism
  • National government is usually not involved in tourism industry


Developing Countries and Tourism for Economic Development

Developing countries use tourism as a source of growth and development

1. Benefits

  • Help diversify economy
    • Example - Gambia is a small poor African country
    • Relies on the export of nuts
    • Diversified its economy by adding tourism
  • Economic development
    • Develop rural areas and/or islands
    • Offset declines in manufacturing
    • Encourage urban revitalization
    • Reduce dependence on foreign aid
    • Country has little natural resources
    • People have a low savings rate (less investment)
  • Lack of export opportunities
    • Tourism is a source of foreign currencies
    • Reduce trade deficits
  • Create income and employment opportunities for local population
    • Tourism jobs are seasonal or part-time jobs
      • Still reduces unemployment levels
      • Local staff may have multiple jobs
      • Local staff may have more than one occupation
      • Wages may be high enough to last through the low season
    • Tourism creates opportunities for students and women
    • Labor intensive industry
    • Demand for unskilled workers or semi-skilled workers
    • Increase standard of living
    • Tourist industry pays relatively higher than agriculture and fishing industries
    • Employment is looked upon favorably by local population
    • Example - Cyprus has about 25% of population employed in tourist industry
  • Formal schools to train for tourist industry
  • Social
    • A better understanding between different civilizations
    • Introduce local traditions to the world

2. Problems

  • Social
    • Damages family structures
    • Creates subsistence food production
    • Displaces local people, as government and businesses construct new airports, resorts, nature reserves, and attraction sites
    • Encourages behaviors, such as begging, and harassment of visitors.
  • Encourages urbanization and emigration to tourist site
    • Could create friction and resentment between local people and visitors
    • Causes overcrowding
    • Increased cost of living for residents
    • Residents may not have access to recreational areas and facilities
    • Increased traffic and congestion
    • Increase in health risks through diseases such as AIDS, malaria, hepatitis, and influenza.
    • Increase in crime
      • Crimes against visitors
      • Increase in drug abuse and prostitution
      • Decrease in public morality
  • Cultural
    • Commercialization of traditional customs in order to make profit
    • Loss of cultural identity
    • Creates misunderstanding between visitors & local community
    • Negative impact on cultural and natural heritage resources
    • Damage to archaeological and historical sites and monuments
  • Employment
    • Seasonal - job and income insecurity
    • Usually has high turnover rate
    • Lack of union power
    • Lack of training
    • Lack of medical benefits
    • Unsatisfactory housing and working conditions
    • No guarantee of employment from season to season
  • High leakage of tourist revenue from imported goods and services
    • 80% of travellers' expenditures goes to the airlines, hotels and other international companies
    • Visitors prefer to travel using an airline from their country of origin rather than the airline of the destination country
    • Local businesses and workers are excluded from most tourist activity
    • Corporations especially in the hotel industry dominate
      • Corporations are usually from developed countries
      • Profits flow back to the home, developed country
      • Generate lower foreign exchange earnings than local hotels
    • High managerial positions go to expatriates
      • Portions of their salaries go back to their home countries
    • Developing countries have higher leakage than developed countries
      • Thailand - approximately 70% of all money spent by tourists leaves Thailand
      • Caribbean is approximately 80%
      • India is approximately 40%
      • Small developing countries range from 40% to 50%
      • Developed economies range from 10% to 20%
    • Note - if locals owned more tourists businesses, such as hotels, more money stays inside of country
      • Local businesses are more likely to buy from local suppliers

3. Investment for Developing Countries

  • Benefits for developing country
    • It is investment
    • Brings technology
      • Quality improves
      • Products and services become cheaper
    • Real wages can increase
    • Increases tax revenue
    • Fosters an awareness of a market economy
  • Problems for developing country
    • Local companies are not able to compete with foreign companies
      • International companies may have vertical and horizontal integration; thus, foreign companies may have market power
      • Local companies may lack the know-how or technology
      • Investment costs may increase, again putting local companies at a disadvantage
    • Foreign companies hire expatriates, especially for high-level and technical positions
    • Foreign companies import machines/equipment, etc.
      • Foreign companies may change tourists' tastes, importing more goods and services
    • Foreign companies transfer their profits back to their home country

4. Developing countries usually have a large informal sector

  • Informal sector has the characteristics
    • Economic activity is usually not included in GDP
    • Government does not regulate
    • Workers in informal economy are usually self-employed
      • Workers may not pay income or social security taxes
      • Although the activity may be legal, violators are not paying taxes or following regulations
  • Easily 40 to 50% of labor force may wotk in the informal sector
    • Ease of entry
    • Reliance of indigenous resources
    • Family ownership of enterprise
    • Small scale of operation
    • Labor intensive
    • Skills acquired from outside of formal schooling
  • Symbiotic relationship between formal and informal sectors
    • Informal depends on formal for supplies in certain inputs
    • Formal depends on informal for low-cost labor, and low-cost products and services
    • Wages may be higher in informal than formal sector
  • Informal workers are exposed to foreign lifestyles, languages, and materialism
    • They emulate the tourists
    • Gain more skills or more education
    • Speak one or more foreign languages
    • Gain marketing techniques
    • Learn to fix or maintain equipment
    • Become tour guides - considered good pay and status
  • Women work informal sector
    • Flexible hours
    • Return home when kids return from school
    • Bring young children with them

Government Involvement into Tourism

1. Government involvement in tourism

  • High-level government intervention in tourist industry
    • Optimize return to tourism industry
    • Prevent exploitation and waste
    • Increased tax base
  • Government has many costs in order to use tourism for economic development
    • Improve infrastructure and facilities
      • sea
      • beaches
      • mountains
      • historic sites or ruins
    • Protect the environmental, natural and cultural resources
    • Subsidize education and training
    • Establishes regulatory agencies and laws
    • Establish a pro-business environment to encourage investment from private companies and businesses
  • Governments play a necessary role in development
    • Private sector may not have the size and capital to development a destination
    • Government may be the lead developer, and controls the development
    • Governments support certain industries to create jobs, and tax revenue
    • Government controls zoning laws and building safety codes
    • Invests in infrastructure
      • Airports, and transportation hubs
        • Water and sewage systems
        • Roads
        • Electricity
        • Telephone networks
        • National parks
    • Improves quality of life for residents
  • Government regulation protects tourists and enhances their travel experiences
    • Consumer protection laws and rules
    • Fire safety laws in hotels
    • Health and food safety regulations
    • Licensing of persons and businesses, such as tour operators, travel agencies, hotels, restaurants, and others
    • Environmental protection regulations
    • International aviation and air travel regulation
  • Tourism development has high opportunity costs
    • Government pays infrastructure costs
    • Government markets the the country and tourist destination
    • Developers may want tax breaks and tax credits to invest at tourist destination
    • Government may reduce programs for its citizens, such as education and health
    • Government controls and monitors the border
      • Entry and exit
      • Issues visas
      • Enforce custom regulations

2. Political stability - influence the image of destinations at tourist sites

  • A tourist may not visit, if a destination has turmoil or unrest
  • Books, magazines, newspapers, satellite and cable links substantially influence tourists
  • A tourist may not visit the destination, if there are wars, coups political strikes, or protests
  • Example 1: Yugoslavia
    • Yugoslavian (Serbian) Army attacks Slovenia in 1991
    • Army attacked Croatia in 1991
    • Army attack Bosnia-Herzegovina in 1992
    • Tour operators for Yugoslavia lost over one million bookings in 1991
    • Two years after the war, Slovenian tourism was still below pre-war figures
  • Example 2: Peru
    • The Maoist Terrorist Group Aim attacked the Peruvian government
    • Attacks caused tourism to drop from 350,000 international visitors in 1989 to 33,000 in 1991

3. Tourism as a Political Tool

  1. Government uses tourism to convey a positive image
    • Example: Re-election of Marcos in Philippines
      • Used tourist arrivals to legitimize his regime
      • Bombing attempt on Marcos at 1980
      • Caused a dramatic reduction in tourist visitation from the USA
  2. Western governments issue regular travel advisories for their citizens
    • Warns risks in travelling to certain destinations
    • Tourists usually adhere to warnings, and avoid countries with warning advisories
  3. Governments use political pressure to promote or sanction specific countries

Tourist Industry in Bali, Indonesia

Characteristics of tourism industry in Bali, Indonesia

  • Bali has a thriving tourist industry
    • Some parts of Indonesia is extremely poor
    • Salaries for crafts people are higher than local farmers and peasants
    • Most of the population has only a primary education
  • Workers in informal sector earn more than the minimum wage
    • Not marginalized
    • Independent
    • Entrepreneurial
    • Not dominated by formal sector
    • Speak one or more foreign languages
    • Many guides and vendors do not obtain required gov. licenses
  • Males usually migrate from the poor island, Java, to Bali
    • Migrants take vending jobs
    • Balinese consider vending jobs as a low status
    • Migrants fill a niche
  • Women earning salaries
    • Has conflict with husband and/or parents
    • Mexico - more female head of households in tourist destination
  • Caste system is challenged in Bali
    • Caste hierarchy
      • Poor - majority of population
      • Priests
      • Merchants
      • Nobles
    • Caste is being replaced by an economic class system
      • Hotel employee - highest
      • Guides
      • Owning a kiosk or other tourist business


  • development
  • modernization
  • Dependency Theory
  • Maslow's Pyramid
  • direct employment
  • indirect employment
  • induced employment
  • backward linkages
  • informal sector
  • political stability
  • caste system

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