rls263 16. tourism+economy

in 2022…

tourism contributed to nearly $38B to Canada’s GDP

what is economics?

• Concerned with the economy or economic system … and the problem of allocating resources is a central theme of economics, because most resources (Craven, 1990)

• the study of how limited (scarce) resources are allocated to satisfy human wants and needs. The products and benefits of these resources are distributed among people. These allocation methods lead to specific economic outcomes and consequences. (Textbook, p.358)

why study economics in tourism?

Tourism is an economic activity — it involves the exchange of money for goods and services between tourists and host destinations.

tourism economics helps us understand…

• How tourism generates income for local communities.

• How money flows through the tourism value chain (hotels, restaurants, attractions, transportation).

• The economic impacts — both positive (job creation, tax revenue) and negative (leakages, inflation, dependency).

• How scarce resources (like land, labour, and capital) are allocated within tourism systems.

micro-economics

Craven (1994, cited in Textbook, p.358):

• the study of individual decisions and the interactions of these decisions.

• it helps us understand behaviour at the individual or firm level within the tourism economy (e.g., hotel pricing, visitor choices, tour operator costs).

focus areas of micro-economics

• How consumers decide what to buy

• How firms decide what to produce

• How these decisions interact to determine:

  • What goods and services are available

  • Whether consumers can buy what they want

  • Whether firms can sell all they produce

  • The profits firms earn

micro-economics cares about…

• the firm

• the consumer

• production and selling

• the demand 

• the supply for goods

macro-economics

Craven (1994, cited in Textbook, p.358):

•  the study of the entire economy and the interactions within it.

• helps us understand how national and global economic trends (like inflation or income growth) affect tourism demand, travel behavior, and destination performance.

focus areas of macro-economics

• Population and workforce

• National income and overall production

• Unemployment rates

• Inflation – average rate of price increases

• Business capacity to produce goods and services

• Money supply – the total amount of money circulating in the economy

macro-economics cares about…

• How the national economy operates

• Employment and unemployment

• Inflation

• National production and consumption

• The money supply in a country

• The role of government in the national economy!!!

GDP

the total value of all goods and services produced in a country during a specific period (usually one year).

economic benefits of tourism - income

• Tourism contributes to economic growth by increasing income across multiple sectors — including hospitality, transport, and retail.

• It also generates employment and business opportunities within local communities.

economic benefits of tourism - GDP

• Represents the total financial value of all goods and services produced in an economy.

• Calculated for a specific area (e.g., a country or region) and time period (e.g., 2023 or 2010–2020).

• When tourism activity grows, GDP rises, showing tourism’s vital role in national and regional economies

economic benefits of tourism - direct employment

Jobs created directly by visitor spending and tourism activities, such as:

• Hotel and resort staff

• Airline and airport employees

• Tour guides and attraction staff

economic benefits of tourism - indirect employment

Jobs in sectors that supply goods and services to tourism businesses:

• Food and beverage suppliers 

• Fuel and transport service providers

• Education and training (e.g., tourism instructors)

economic benefits of tourism - induced employment

Jobs supported by the spending of income earned from tourism:

• Local transport operators (e.g., bus/taxi drivers)

• Grocery and retail workers

• Other local service staff

economic costs of tourism - inflation

refers to the increase in prices within an economy and the decrease in the purchasing power of money.

impacts of inflation on local residents

• Every day life becomes more expensive due to rising costs of goods and services.

• Locals often compete with tourism businesses for land, housing, jobs, and essentials.

• Tourism growth can push up prices during high-demand seasons.

economic costs of tourism - leakage

refers to the portion of tourism revenue that leaves the local or national economy, instead of staying within it.

• money from tourists leaves an economy; money LEAKS out of the economy

how tourism leakage occurs — the baseline

• Tourists spend money on imported goods and services rather than locally produced ones.

• Profits from tourism businesses may go to foreign owners or corporations.

• High dependence on international brands (hotels, airlines, tour operators) increases leakage.

leakage…

reduces the net economic benefit of tourism and highlights the importance of strengthening local supply chains

how tourism leakage occurs

• vertical integration

• repatriation of profits

• not sourcing locally

• payments made in generating countries

vertical integration

cause of tourism leakage

• When one company owns multiple stages of the tourism supply chain (airlines, hotels, travel agencies).

  • Example: Transat Inc. (Canada) owns Air Transat, tour operators, and hotels—yet money flows abroad for aircraft purchases (e.g., Boeing, Airbus)

repatriation of profits

cause of tourism leakage

• Profits from foreign-owned companies return to their home countries.

  • Example: Disney Cruise Line departs from Vancouver, but most profits return to Disney (U.S.)

not sourcing locally

cause of tourism leakage

• Tourism businesses import goods or services instead of using local suppliers.

  • locals should be prioritized when it comes to tourism revenue, but they aren’t.

  • sometimes companies hire foreigners cause they can pay them less!

  • Example: A Canadian music festival produces its merchandise in the U.S..

payments made in generating countries

cause of tourism leakage

• Tourists pay for vacations before arriving at the destination.

  • Example: Canadians booking a Caribbean trip through a Canadian travel website.

  • some adventure tourists buy food from home and then bring it to their destination which is also an example of leakages