Exam 2 Study Guide Chapter 4 Tourism The Environment and Economics The Role of the Natural Environment o Services provided by the natural environment for society Resources for wealth creation Ability to act as a waste disposal system Providing us with aesthetic appreciation and landscapes for recreation Provides us with a life support system oxygen and water Economic Growth and Human Welfare o One of society s primary concerns is increasing the standard of living o The conventional view to achieve this objective is through higher levels of production and consumption or economic growth o Economic growth has come to be identified as a way of improving people s welfare o Tourism may have a significant role in wealth creation within the context of economic growth o From the perspective of government the primary concern with tourism has been as a vehicle for economic growth o The most important benefits are Foreign exchange earnings Reduction of the trade deficit Employment creation Increased expenditure Linkages to other sectors of the economy Diversification of the economy o Tourism can be developed with relatively little financial investment when compared to other industries o The rationale has therefore been based upon economic benefits with relatively little consideration on its impact on the environment o The terms standard of living and quality of life are used interchangeably o However they mean different things Standard of living measures economic welfare quality of life includes environment culture activities levels of health and religious or spiritual life o The degree of success in achieving economics growth is measured by the gross domestic product GDP and gross national product GNP o GDP is the value of all the goods and services produced over a period o GNP has been commonly used to measure the total production of the of time country o GDP the value of the production of all the goods and services in a country s economy over a certain time period Tourism and Growth o GNP a further refinement of the measure of GDP o They are key indicators of the success of economic policy o Both tell little about the quality of the environment o GNP only measures things that are bought and sold for cash it does not take into consideration clean air pure water and natural beauty o Many view tourism as a measure of pursuing economic growth o It is important to recognize that only a portion of the money spent by tourism will stay in the destination economy o The reason is that the money spent leaks out of the economy o The leakage occurs when interest charges are paid on loans import of materials and equipment the employment of foreign workers taxes paid to the government etc o Package tours have a high leakage factor o Approximately 80 of all expenditures going to airlines hotels and other international companies o The cost of air transportation is about 40 50 of the total cost of travel vacation o It is important to consider the real economic benefits of tourism during the planning stage before development Considering community based services and products The World s Tourism Earners in 2005 o U S o Spain o France o Italy 81 700 billion 47 900 billion 42 300 billion 35 400 billion o United Kingdom Problems of Externalities 30 700 billion o Tourism development can lead to negative effects o For example pollution of the sea can lead to the contamination of stocks impacting the fishing industry o Increased air and car traffic could lead to air pollution and incidences of asthma in the local population o There is a discrepancy between private costs of production and full social costs in a society o Externalities arise because resources such as clean air water and landscapes can be classified as public goods o One way to correct the situation is to have the government impose an environmental tax on the hotels o The imposition of a fine on the hotel means that the external cost of the operations are internalized o The producer the hotel will then be paying for the compensation of fishermen for their loss of opportunity to fish and for the health care to treat residents o The hotel management may pass these additional costs to their guests by raising their rates o One of the problems with the polluter pays concept is estimating the value of the resources being damaged o Another problem is establishing the cause and effect relationship which makes it difficult to isolate the cause of an environmental problem o Another method of the application of the polluter pays principle is through taxation o This form of taxation is known as green taxation o Green taxation has been considered as a method to close the gap between private and social costs Public or Collective Consumption Goods o In the tourist industry many of the impacts caused by development are related to resources with open access and with few legal controls o Finding a solution to the overuse of the earth s resources is a complicated issue o The fact that public goods are non exclusive and considered as having zero cost means that the market for these goods cannot operate Tourism Economics and Conservation o Economists have tried to examine how economics can be inclusive of the natural environment o Once method is based upon consumer preference for the environment o Putting an economic value on environmental assets is difficult o Society however puts values on environmental assets by deciding which policies are implemented o Individuals and non governmental organizations give money to protect the environment o The environment must have an economic value o Willingness to pay WTP is a measure of an individual s preference for a good in the market place o The Travel Cost Method TCM has been the most widely accepted o It is based on what people spend on traveling to recreational sites o Tourists place a value on the quality of their destination by spending money and time to travel there o If tourists wish to see wildlife then it is possible to give it a market method value an unstable option Review o There are some species of animals that are not attractive to tourist but have a role to play in the ecological system o If natural habitat is judged not to have sufficient economic value then other options for its development are considered o Revenues generated from tourism may be used for the conservation of resources building infrastructure employment opportunities etc o However tourism is vulnerable to external factors like economic recession