Economic Impact On Local Tourism

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Tourism is often referred to as a ‘multi-product industry that encompasses a number of different economic activities’ (Wall& Mathieson, 2006). The rapid development of the world economy in the past two decades alongside with global integration and globalization has led to a significant increase in the number of tourists travelling abroad for leisure and entertainment. According to the United Nations World Tourism Organization (UNWTO), the number of tourist arrivals reached an astonishing figure of 1.1 billion visits in 2014. Currently, tourism is one of the fastest growing and dynamic sectors of the world economy accounting for nearly 1.5 trillion US Dollars in receipts and exports accounting as one of the top 5 export earning sectors of the…show more content…
This triggers the indirect effects of tourism on the local economy by developing other local businesses not associated with tourism. These effects are related to production changes occurring from shifts in tourist industry demands. The wages and salaries paid to workers within the tourist or related industries trigger the induced effect. The employees busy in the industry re-spend their income on goods and services produced by non-tourist related industries triggering their development. Therefore, the generated income can move down to the lower income layers of the economy. Furthermore, tax revenues the government receives both from tourists and local businesses can be used in government expenditures on health, education, science and infrastructure. In addition, tourism significantly improves export opportunities for developing countries contributing to the expansion of their economic growth. The government foreseeing these advantages implements public policies favorable for the development of tourism. (Stynes,…show more content…
Critics of tourism in developing countries suggest that only minimal economic benefits are left within the countries due to high levels of profit leakage (Boz, 2007). Profits leakage refers to a situation when the incomes generated by local businesses flow out of country in exchange for imported goods and services or as dividends for foreign multinational companies that own local tourism related businesses. These factors are proved by high leakage rates (UNWTO, 1995). However, the mentioned above factors may not be the only significant factors accounting for economic leakage since there is no linear relation between growth of the tourism industry and economic growth (Fletcher, 2006). A sound example is presented by Suchanek (2000) who indicates that the portion of the population living below the poverty line increase while the tourist industry expanded. Therefore, the main issue the governments in developed countries that promote tourism have to solve is how to make the money earned by the industry remain in the destination economy. According to the UNWTO (1995) the main causes for leakage include import of material, equipment and non-durable goods, repatriation of profits by foreign companies, repatriation of income by expats, interests paid for foreign loans and marketing expenses abroad. Therefore, much effort is put by the local

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