QUESTION

Assessment 2

Assessment method: Issues paper – Individual essay submission

Weighting: 30%

Word limit or equivalent: 1500 words

Assessment topic: Global Tourism and the Emerging Economies

Step 1: Go to the World Travel and Tourism Council website at www.wttc.org/research.

Step 2: Choose a country that you consider to be an “emerging economy” or a “developing economy” and download the

Economic Impact report for 2012.

Step 3: Answer the following questions:

1. What is the contribution of tourism and travel to the county’s gross domestic product? Has this been increasing or decreasing over the past ten years? How does this compare to the world average? ( 6 marks)

1. What percentage of the country’s GDP is expected to be made up of tourism activities in 2022? How does this compare to the present? (4 marks)

1. What percentage of employment in this country is due to tourism and travel activities? How does this compare to the world average? (4 marks)

1. How many tourists visited this country in 2012? How does thjs compare to the forecast for 2022? (4 marks)

1. What percentage of tourism and travel dollars spent in this country in 2012 were due to domestic tourism compared to international tourism? (2 marks)

1. If a widespread civil war broke out in this country how would it affect the amount of tourism in this country and the price of tourism products sold in the country? Demonstrate this using demand and supply graphs and explain which conditions of demand and supply would be affected. (10 marks)

SOLUTION

Contents

1. Introduction. 1

2. Contribution to GDP. 1

3. Forecasts for 2022. 2

4. Contribution to Employment by the Tourism Sector 2

5. Tourist Footfall in the India. 3

6. Domestic vs. International Tourism.. 3

6. Effects of a Civil War on the Demand and Supply within the Country. 4

7. Conclusion. 7

7. References. 8

1. Introduction

With the growth and development of the Indian economy, the impacts of the recent high growth rates achieved over the last decade have had an impact on the all sectors of the economy. The same has been the case of the travel and the tourism sector of the economy, which has experienced steady growth over the decades and also reflects a positive outlook for the future. The paper examines the impact of the growth of the travel and tourism industry and its contribution to the GDP over the years.

2. Contribution to GDP

Due to the globalization of the Indian economy in 1991 the Indian economy has experienced steady rates of growths. The Indian services sector has been largely responsible for the steady growth rates experienced by the Indian economy, however the growth of the economy was not only confined to the services sector the effects of the growth has trickled down to the other sectors of the economy as well and resulted in the effective growth of the sectors and the Indian economy as a whole. The effect of the high growth rates have also trickled down to the tourism and travel sector which has experienced high growth due to the capital investment in infrastructure in various destinations attracting tourists both domestic and foreign. (Goyal, 2006 and www.wttc.org – India – accessed on 23/5/2012)

Figure 1: GDP Growth 2002-2010 (Source: World Bank Data – accessed on 23/5/2012)

The effects of the growth have trickled down to the tourism sector which contributed INR 651 billion which is 6.4% of the GDP in 2011; the contribution is likely to increase to 7.3 % of the GDP and eventually to 7.8% by the end of 2022. The contribution of the Tourism sector has been steadily increasing over the past decade. India at 6.3% ranks fairly low in comparison to 14.1% world average. Thus the Indian economy is a developing economy and with investment in infrastructure the sector can be boosted (www.wttc.org- accessed on 23/5/2012).

3. Forecasts for 2022

In 2012 the contribution of the tourism sector is likely to increase to 7.3% of the GDP, and, eventually to 7.8% by of 2022. In comparison to the current comparison the increase in the sector contribution is fairly less as its accounts for a mere 2% increase thus a clear indicator that the sector requires more investment in infrastructure and services and  promote the country as a favourable tourist destination. A major reason for the fairly low expectation is the lower GDP growth of 7.4% expected in 2012, owning to the effects to the global financial crisis. The country would have to recover from the crisis and identify key areas of growth and development, and get back on the road to growth.

(www.wttc.org, www.thehindu.comaccessed on 23/5/2012).

4. Contribution to Employment by the Tourism Sector

The tourism sector can be a major source of employment in the country if managed effectively. Some countries can be regarded as tourist countries where tourism is the main contributor to the GDP of the economy as well as the major source of employment in the economy. The Indian Tourism sector provides fairly high employment of 39351(000’s) jobs, this is a fairly high in comparison to the world average of 1952.2(000’s) jobs. The world average contribution is was 13.6% in comparison to India’s 7.8% in 2011. In the percentage terms the creation of the jobs is more variable. There is a great deal of potential in the tourism and employment opportunities can easily be created in the sector. The high rate of employment could also be due to the labour intensive nature of the Indian economy. Thus even if the contribution of the sector to the GDP may be small in the size to the economy as a whole , it is more important to create employment opportunities in a middle –low income country like India which would eventually impact the economic development as a whole.

(www.wttc.org, worldbank.org – accessed on 23/5/2012)

5. Tourist Footfall in the India

INR 801.4 billion visitor exports were generate in 2011, this is figure is expected to increase in 2012 with over 6504,000 visitors expected an increase of 3.5%. The figure is further expected to improve by 2022 11276,000 visitors expected to enter the country an increase of 5.2% from the current.

The figure below shows the increase in the international tourism receipts in India from 2002-2010. The international receipts from tourism have been increasing continuously from 2002 onwards as shown in the figure below (World Bank Data, www.wttc.org – accessed on 23/5/2012)

Figure 2 : Increase in the International Tourism Receipts 2002-2010(World Bank Data – accessed on 23/5/2012)

6. Domestic vs. International Tourism

The Domestic Travel spending generated about 82.2% of the direct travel within the country, in comparison to the 17.2 % contributed by the International tourists. However it should be noted that the international receipts from tourism have been experiencing a steady rise from 2002 onwards and the same is expected for 2012 as well as 2022((World Bank Data, www.wttc.org – accessed on 23/5/2012)

Figure 3: Increase in the International Tourism Receipts 2002-2010(World Bank Data – accessed on 23/5/2012)

6. Effects of a Civil War on the Demand and Supply within the Country

The outbreak of the civil war within the country, the effects of the war on worsening the economic conditions of the country are quite ambiguous. Also some regions like the Sub Saharan Africa already prone to civil war conditions it is difficult to analyse the impact of the war on the economy as the conditions in the economy are already quite at low. However civil wars do have an impact on the export demand of the goods of country, faced by the low commodity prices. This situation has been faced by the Sub-Saharan African countries which have experienced a drop in the coffee price (major export good) with the outbreak of the consequent civil wars in the country. The same effect is likely for the Indian economy as well with driving down the export prices and eventually the export demand (Brückner et al ,2009). In this case the exports can be identified as the tourism receipts which would be greatly affected by the unsafe environment in the country.

Figure4: Trade of an International Exporting Country (Mankiw, 2009).

In the above figure the export demand for the Good A(Tourism Service) of the country is represented and the market is in equilibrium at the world price Pw , But however as the export demand falls and the curve shifts leftwards there is also a fall in the price of export goods, thus reducing the exports of the economy . The domestic demand pressure increases owning to the conditions of the economy, and there is a fall in the export demand for the good.

In case of outbreak of the civil war the goods which can be classified as the necessities, face a relatively inelastic demand curves experience a sharp increase in the prices. On the other hand luxury goods tend to have elastic demands .This can be explained with the help on an example, thus food has no substitute particular in the case of a war food like basic grains is indispensable therefore they are likely to face inelastic demands and the would be greatly affected by the upward price movements. A good can be classified as a luxury or a necessity depending upon its basic intrinsic properties and its value to the buyer.

Figure 5: Effects on Relatively Inelastic Demand with the Increase in Price (Mankiw, 2009)

Therefore, when the good faces a relatively inelastic demand curve, the quantity demanded in unlikely to be effected even with a sharp increase in the price, as depicted in the above figure, the price of good A moves from P1 to P2 the quantity demanded is affected in a small way despite the sharp increase in the prices (Mankiw , 2009).

In the case of the civil war suppliers may practice hoarding and black-marketing of certain essential goods like food. Hoarding can be defined as a mechanism to create artificial scarcity in the market driving the price of the essential commodities upwards. This leads to a sharp increase in the price of the good and a subsequent decrease in the supply, thus making the good a scarce commodity. Black-marketing and the scarcity of food grains are created by traders to charge higher prices to buyers. Thus the effect on the demand and supply as a result of the hoarding and black marketing in the economy are:

Figure 7 : Effect of Hoarding and Black-marketing on the Supply and the Demand of food(Mankiw 2009).

With the hoarding of the good and the aim of the trader to create artificial scarcity in the market, the trader cuts back the supply shifting the supply curve to the left, eventually driving up the prices from p1 to p2. The change the in total quantity equilibrium is fairly small because of the inelastic demand for the commodity. Thus scarcity has no impact on the demand of a necessity; the buyers are willing to pay a higher price for the good(Mankiw ,2009 and Brückner et al 2009)

7. Conclusion

Thus, the outbreak of the civil war would have a detrimental effect on the travel and tourism industry. As the country would not be safe for travelling the buyers would refrain from travelling, this would cause a huge loss of the international received from tourism. The civil war would also affect domestic tourism as the citizens of the domestic country may not choose to travel in the disturbed areas again posing a loss of revenue. Therefore for the tourism industry to flourish it is important a safe environment is available.

7. References

• “WTTC | Home- India .” WTTC | Home. N.p., n.d. Web. 22 May 2012. <http://www.wttc.org>.
• “World Databank.” World Databank. N.p., n.d. Web. 22 May 2012. <http://databank.worldbank.org/ddp/home.do?Step=1&id=4>.
• “The Hindu : Business / Economy : Morgan Stanley lowers India’s 2012 GDP forecast to 7.4 p.c..” The Hindu : Home Page News & Features. N.p., n.d. Web. 22 May 2012. <http://www.thehindu.com/business/Ec
• “India.” India. N.p., n.d. Web. 22 May 2012. <http://www.worldbank.org.in/WBSITE/EX
• Mankiw, N. Gregory. Principles of economics. 6 ed. Mason, Ohio: South-Western ;, 2009. Print.
• Goyal, Krishn A. “Impact of Globalization on developing countries -with special reference to India.” International Journal of Finance and Economics 2887.5 (2006): 1-6. Print
• Brückner, Markus,Ciccone A “International Commodity Prices, Growth, and the Outbreak of Civil War in Sub-Saharan Africa.” /www.antoniociccone.eu 2.1 (2009): 1-22. Print

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