Download Economic Multiplier

Matakuliah : V0162 - Pengantar Industri Hospitality dan
Pariwisata
Tahun
: 2008
Economic Impact of Tourism
(Harapan Masa Depan Pariwisata)
Week 10
Subject
• International economic impact (Dampak pariwisata
terhadap perekonomian internasional)
• Optimization of tourism resources (Optimalisasi
sumber-sumber daya pariwisata)
• Economic multiplier
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Economic Impact of Tourism
Week 10
Objectives:
On completion of this lesson, the students will be
able to explain the international economic impact,
optimization of tourism resources and economic
multiplier
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An International Perspective
Week 10
Tabel 1
Arrivals (millions)
2002
2003
Change Rate
Market
2003/2002
2003
World
702.6
694.0
-1.2 %
100 %
Africa
29.1
30.5
4.9 %
4.4 %
Americas
114.9
112.4
-2.1 %
16.2 %
Asia and the Pacific
131.3
119.1
-9.3 %
17.2 %
Europe
399.8
401.5
0.4 %
57.8 %
27.6
30.4
10.3 %
4.4 %
Middle East
Source: Goeldner & Ritchie (2006 : p. 375)
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An International Perspective
Week 10
• The war, terrorism, SARS and a weak
economy made 2003 another difficult year
for international tourism. According to WTO,
the total number of international arrivals
reached 694.0 million in 2003, a decrease of
1.2 % from 2002 (see table 1 above)
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An International Perspective
Week 10
• Expectation for 2004 and Beyond
– The future prospect of tourism appear to be very
positive. Asia and the Pacific is showing a strong
rebound from 2003.
– Business travel is showing signs of recovery: low
cost airlines are continuing to increase their
capacity and expand their coverage
– WTO’s Tourism 2020 Vision forecasts that
international arrivals are expected to reach over
1.56 billion by the year 2020
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Comparing International and Domestic Expenditures
Week 10
• The total tourists arrivals by regions shows that by
2020 the top three receiving regions are:
• Europe: 717 million tourists
• East Asia and Pacific: 397 million
• The Americas: 282 million
• Employment
– WTTC (The World Travel and Tourism Council)
estimates that employment in travel and tourism
economy was 221,568,000 jobs in 2005, or 8.3%
of total employment (1 in every 12 jobs). By
2015, it will grow to 269,556,000 jobs, or 8.9% of
total employment (1 in every 11.2 jobs)
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Comparing International and Domestic
Expenditures
Week 10
• Employment
– Tourism provides both direct and indirect employment
• Direct employment:
– The employees are in contact with tourists and provide
tourists experience
– E.g. Hotels, restaurants, airlines, cruise liners and
resorts
• Indirect employment:
– Employees of companies providing goods and services
to the direct employment companies
– E.G. Aircraft manufacturers, construction firms,
restaurant suppliers
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Direct Travel-Generated Employment by Industry
Category in the U.S., 2002
(Employees in thousands)
2002
% of total
Public Transportation
990.4
15.8
Auto Transportation
251.8
4.0
Lodging
1,165.1
18.6
Food Service
2,346.9
37.5
Entertainment/ Recreation
987.1
15.8
General Retail
331.7
5.3
Travel Planning
183.3
2.9
6,255.8
100.0
Total
Source: Goeldner & Ritchie (2006 : p. 378)
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Optimization
Week 10
• Economics is concerned with the attainment of
an optimum return from the use of scarce
resources
• Economic agents seek to allocate the limited
supply of tourism resources as they seek to meet
the demands of tourists
• The problem that economics attempts to solve is
how to achieve an economical optimal allocation
of scarce tourism resources, when facing the
constantly shifting demand (generated by
physical needs and psychological wants) for
these sources.
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Optimization
Week 10
At least 3 major goals can be identified in
tourism:
1. Maximize the amount of psychological
experience for tourists
2. Maximize profits for firms providing
goods and services for tourists
3. Maximize the direct (primary) and
indirect (secondary) benefits of tourist
expenditures on a community or region
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Optimizing the Experience
Week 10
• The tourist is particularly constrained by time
and budget. To optimize the experience, it is
necessary to determine the combination of
destinations preferred and the possibilities
within the money and time constraints.
• This explains some of the popularity of package
tours where both time and cost can be known in
advance
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Optimizing for the Local Economy
Week 10
• Tourism affects a region during periods of intense
investment activity and afterwards when the investments
are producing
• The multiplier effects in both cases are dependent upon
the strength of the linkages
• Linkages will be strong and the income multiplier will be
high if resorts in a tourist destination hire local labor and
buy products such as meat, fruits, flowers, vegetables
and poultry from local farmers
• If most of the goods and services are imported from
another state or country, then linkages will be weak and
the income multiplier will be low
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Weak Linkage and Low
Income Multiplier
Strong Linkage and High
Income Multiplier
$$$
$$$
Buy food products
from local farmers
Employee local
labor
$$$
$$$
Buy food products
from local farmers
Employee local
labor
$$$
Buy furnishings
for guest rooms
from local
manufacturers
RESORTS IN A
TOURIST
DESTINATION
$$$
Buy furnishings
for guest rooms
from local
manufacturers
Bina Nusantara
RESORTS IN A
TOURIST DESTINATION
Hire local
entertainment
Imported
Goods and
Services
$$$
Hire local
entertainment
Imported
Goods and
Services
Imported
Goods and
Services
HO@0808
$$$
Tourism Exports and Imports
Week 10
• Japanese tourists traveling to Indonesia presumably earned
their income in Japan. When spending money in Indonesia
as tourists, they are “injecting money” into our economy. As
such, expenditures by foreigners in this country (for travel
purposes) represent TOURISM EXPORTS for Indonesia.
• Why Export? Because when the tourists leave the country,
they take their experiences back with them. Thus, we have
exported travel experiences.
• Thus when Indonesian tourists travel to Japan and spend
money there, this becomes a TOURISM IMPORT to the
Indonesia economy.
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Tourism Exports and Imports
Indonesia Commodity Exports
Indonesia Tourism Exports
Commodity Flow
Indonesia
Tourist Flow
Japan
Indonesia
Payment Flow
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Japan
Payment Flow
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Balance-of-Payments Effects
Week 10
• Balance-of-payments situation directly affects the gross national
products of a country (Y). The formula is:
Y = C + I + G + (X – M)
• Where:
Y = gross national products
C = consumer expenditures
I = investments
G = government expenditures
X = exports
M = imports
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Balance-of-Payments Effects (a case in the U.S.)
Week 10
• Based on the formula, if M (imports) > exports (X), then the
difference (X – M) will be a negative number, and Y will thus be
smaller
• Thus it is advantageous to American economy to attract more
visitor spending in the U.S. These “tourism exports” are like
credits and help the American economy
• It is economically better to have foreign visitors come to the US
than to have U.S. citizens travel abroad
• However, this situation is not entirely positive or negative.
Expenditures by U.S. tourists abroad make possible purchasing
power in foreign countries for those countries to buy Americanmade products.
Bina Nusantara
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Balance-of-Payments Effects (a case in the U.S.)
Week 10
• For example, most airlines of the world use American-made
equipment. Purchase of these equipment and so forth makes an
important contribution to the export trade of the U.S.
• When the U.S. dollar is high against foreign currencies, a
dampening effect occurs on America’s tourism exports because
this condition is seen as unfavorable by prospective foreign
tourists. But if the dollar is low, more foreign tourists will visit the
U.S. This will increase America’s tourism exports, improve its
balance of payment and raise the gross national products.
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Investment Stimulation
Week 10
• The tourist industry has a unique structure. It contains a
large number of very small units, covering a variety of
different trades – the small restaurants, motels, guest
houses, laundries, arts, craft shops and others.
• Thus investment in infrastructure by the government
stimulates investment in numerous smaller businesses
• The initial investment in tourism brings forth a large
investment in supporting and tertiary industries. This also
includes large investments in major hotels, restaurants,
shopping centers, airports, marina, etc.
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Tourism Increases Tax Revenue
Week 10
• Tourists must pay taxes. Besides the usual sales tax,
sometimes they pay taxes in less direct ways: airport
taxes, exit fees, customs duty and charges for granting
visas
• The taxes paid by tourists will increase revenue for the
host government
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Inflationary Pressure
Week 10
• Tourists inject money into the destination economy. While
this increases the income of a region/ country, it also
might cause inflationary pressures.
• Tourists typically have a higher expenditure capability than
the residents do (this is because tourists have higher
income or they have saved money for their trip and are
inclined to spend them while on vacation). Hence, they are
able to bid up the prices of such commodities as food,
transportation, and arts and crafts.
• This causes inflationary pressures which can be
detrimental to the economic welfare of residents of the
host community.
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Inflationary Pressure
Week 10
• This is true when inflation affects the prices of essentials
such as food, clothing, transportation and housing
• According to Lundberg (Caribbean Tourism, Cornell Hotel
and Restaurant Administration Quarterly vol. 14. no. 4, pp.
30-45, Feb 1974), as the tourist industry developed in an
area, land prices rose sharply.
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Economic Multiplier
Week 10
• Direct Effect
– Direct effect result from the tourist spending money in tourist
enterprises and providing a living for the owners and
managers and creating jobs for employment
• Indirect Effect
– The visitor expenditure gives rise to an income that, in turn
leads to a chain of expenditure-income-expenditure and so
on, until leakages bring the chain to a halt
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Economic Multiplier
Week 10
• Indirect Effect (an example)
– A skier buys a lift ticket for $50. The money received from
the ski area will be used to pay the wages of the lift
operators.
– The lift operator spends the money on groceries
– The grocer uses the money to pay part of his rent to the local
landlord
– The landlord uses it to pay for his dry cleaning
– The dry cleaner spends it in a restaurant for lunch
– The restaurant owner spends it for steak shipped in from
Kansas City
– The cycle stops as the money is lost to the local economy
– This last transaction is known as leakage from the economy
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Leakage
Week 10
Savings
Multiplier =
Leakage =
1
MPS
Imports
Where:
Savings = not loaned to another spender
Imports = spending on tourism needs in
sources outside country (state)
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Suppose the MPS is 1/3,
then
Multiplier = 1 : 1/3 = 3
Income Multiplier
Week 10
• Tourism expenditures injected into the economy produce an
income multiplier for local people
• Tourists receipts are used to buy a wide variety of goods and
services over a year’s time
• The money turnover creates additional local income
• The amount of income multiplication, however, depend on how
much leakage takes place. Leakages are a combination of:
– Imported goods and services purchased by tourism supplier
– Saving made of tourist receipts not loaned to another spender
within one year of receipt
• Thus, the more tourist goods that are supplied locally, the higher
will be the multiplier
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Employment Multiplier
Week 10
• Increased spending necessitated more jobs,
which results in an employment multiplier
• The employment multiplier varies from
region to region depending on its economic
base
• The smaller the multiplier value, the smaller
employment opportunity and vice versa
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Employment Multiplier
Week 10
• Example:
– The multiplier value in country A is 1.13 and
in country B is 2.63
– Country A would provide employment
opportunities for approximately 0.13 person
for each person directly employed in
servicing export demand and country B
would provide employment opportunities for
approximately 1.63 person for each person
directly employed in servicing export
demand
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Transactions Multiplier
Week 10
• As increased spending produces more
financial transactions, they create a
transactions multiplier
• There are of particular interest to
governments that have a sales or valueadded tax on such transactions
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Capital Multiplier
Week 10
• As a tourist area grows, more capital is
invested in new facilities – more
infrastructure and superstructure are
constructed. This results in a capital
multiplier.
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Distribution of Tourism Expenditures
Week 10
Visitors Spend For
Travel Industry Spends
Ultimate Beneficiaries
Lodging
Wages and salaries
Accountants
Food
Tips, gratuities
Advertising & PR
Beverages
Payroll taxes
Appliance stores
Entertainment
Commissions
Architects
Clothing etc
Music & entertainment
Arts & craft producers
Gifts and souvenirs
Administration & general
Automobile agencies
Photography
Legal services
Attorneys
Personal care
Purchase of F&B
Bakers
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Distribution of Tourism Expenditures
Week 10
Visitors Spend For
Travel Industry Spends
Ultimate
Drugs and cosmetics
Purchase of materials &
Banks
Internal transportation
Repairs & maintenance
Beach accessories
Tours & sight-seeing
Advertising, promotion
Cashiers
Miscellaneous
Utilities
Clothing stores
Transportation
Clubs
Insurance premiums
Contractors
Rental of premises &
Cultural organization
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Distribution of Tourism Expenditures
Week 10
Visitors Spend
Travel Industry Spends For
Ultimate
Investment and principal
borrowed funds
Department stores
Income and other taxes
Dry cleaning
Replacement of capital
Engineers
Return to investors
Farmers
Fishermen
Gardeners
Gas stations
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Distribution of Tourism Expenditures
Week 10
Visitors Spend
Travel Industry Spends
Ultimate Beneficiaries
Government
Grocery stores
Gift shops
Furniture shops
Importers
Restaurants
Resort etc…..
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THANK YOU AND
HAVE A GOOD DAY
Bina Nusantara
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