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Tourism is one of the world’s most important activities, involving millions of people, vast sums of money and generating employment in developing and industrial countries.
The economies of Tourism presents new insight into the intricacies of tourism demand, firms and markets, their global interrelations and the fundamental contribution of environment to tourism activities, to offer an accessible, interdisciplinary analysis of the interwoven fields of tourism and economics.
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Today, tourism is one of the largest and dynamically developing sectors of external economic activities. Its high growth and development rates, considerable volumes of foreign currency inflows, infrastructure development, and introduction of new management and educational experience actively affect various sectors of economy, which positively contribute to the social and economic development of the country as a whole.
Most highly developed western countries, such as Switzerland, Austria, and France have accumulated a big deal of their social and economic welfare on profits from tourism.
According to recent statistics, tourism provides about 10% of the world’s income and employs almost one tenth of the world’s workforce. All considered, tourism’s actual and potential economic impact is astounding. Many people emphasize the positive aspects of tourism as a source of foreign exchange, a way to balance foreign trade, an ‘industry without chimney’ ‘ in short, manna from heaven.
But there are also a number of other positive and negative factors of tourism on economy for local communities. Therefore in this essay the researcher will explain the impact on economy due to tourism to local communities.
Relationship between Tourism and Economic Development
Tourism is of great importance in any country’s economic growth and on conversely economic growth will initiate growth in tourism activities in any economy. The importance of economic development to tourism is widely accepted (Pearce, 1995). Tourism has been regarded as the main instrument for regional development as it stimulates new economic activities; it has a positive economic impact on the employment, foreign exchange earnings, production and gross income. However uncontrolled and unplanned tourism activities can lead to a negative impact on the society (Fossati and Panella, 2000).
Positive Impact of Tourism on Economic Growth
Tourism is classified as one of the fastest growing industries worldwide. It contributes extensive economic benefits on both sides, for the tourist home country as well as the visiting country. In less developed Countries tourism activities are regarded as resources which are expected to enhance economic growth. When tourists travel internationally apparently the host country earns foreign currency, hence the inflow of revenue creates government revenue, business turnover, household income and employment (Archer and Fletcher, 1991). Domestic tourism will have the same effects on the host country while international tourism creates an inflow of foreign currency while on the other hand domestic tourism creates spatial redistribution of local currency within the boundary of the country (Archer et al., 1998).
Negative Impact of Tourism on Economic Growth
Most Less Developed Countries (LDC’s) depends on foreign aid from the developed world to stimulate its economic growth as well as to cover budget deficits in social services and infrastructure activities. In this context therefore, tourism growth creates an illusion to the aid provider to limit and cut their financial aid as a result many countries that depend on financial assistance are affected, which leads them remaining poor. For a different perspective the enormous inflow of tourists may lead to price increase of many goods and services in the tourist destinations by which in turn the societies around are affected as they have to follow the price pattern. Further more tourists are interested in very narrow range of products such as beauty products, gifts, sports equipments clothes, meals and special products like chocolates, which the local residents are not always in need of, and this leads them to change their buying behaviour and shift to other points of sale.
On other hand it is assumed that mass tourism increases land price, it also creates additional demand for land whereby potential buyer compete hence a higher price. The local people are required to pay more for their homes. Generally, mass tourism leads to higher land value, more jobs and wealth. Conversely, in a situation when tourism demands are very high inflationary tensions in tourism spill over the economy at large and contribute to a large inflation (Wall and Mathieson, 2006).
Travel and Tourism in South Korea
The Republic of Korea (South Korea) is located about 500km off the coast of mainland China, and forms the entire southern half of the Korean peninsula. There are many hundreds of small islands to the south, most of them uninhabited. The territory is mixed in character, with considerable mountainous areas. Consequently, most of the largest settlements are on the southern and eastern coasts, the capital city of Seoul being the notable exception. The present capital is Seoul.
Economy and Tourism of South Korea
- South Korea is Asia’s fourth-largest economy and slowed to 2.2% in 2008, after several years of strong growth. In 2009, GDP reduced by 0.8%, due to the global economic downturn. Given this country’s reliance on exports, the recovery would depend on the rebound of global demand. An economic recovery was expected in 2010 with a 3.7% growth in GDP, while further improvement is forecasted in 2011, with a 4.6% increase in GDP;
- Private consumption registered a moderate year-over-year increase of 0.9% in 2008 and is forecasted decline by 0.4% in 2009, before rebounding to 2.7% in 2010. In 2011, private consumption is expected to gain momentum and improve by 3.8%;
- The unemployment rate rose to 4.0% in 2009, which was due to the global economic slump as a result of demand from the export dependent country. The ensuing slowdown in employment has been the countries worst since the 1997-98 Asian financial crisis. As South Korea’s economy emerged out of the 2009 recession, unemployment is forecasted at 4.1% in 2011, as employers remain cautious in hiring new employees;
- South Korea’s consumer prices grew at their fastest pace with a 4.7% growth in 2008, which was caused by high oil and other commodity prices. Rising inflation has affected the country’s economic growth and has impacted the country’s ability to pull out of the recession in 2009. Inflation fell to 2.7% in 2009 and 2.1% in 2010;
- The Korean Won weakened greatly in 2008 and depreciated further in 2009. The Won is forecasted to appreciate in 2010 and improve by in 2011.
Impact of the Global Recession
The South Korean economy posted negative quarter-on-quarter growth of 6% in the fourth quarter of 2008 in the wake of the economic turmoil triggered by the global financial crisis. This was the first time since the financial crisis in 2007 that negative growth was recorded. This was followed by positive growth of well below 1% in the first quarter of 2009 and 2% in the second quarter. In 2008, as the economy began to spiral downwards, the South Korean job market became unstable, and, as a result, unemployment rose to 4% in early 2009 from the average of 3.5% seen over the review period. More worryingly the unemployment rate amongst South Koreans in their 20s stood at nearly 9% in 2009. Furthermore, disposable income shrank in the majority of households. Meanwhile, during the first quarter of 2009, the lowest 20% of South Korean taxpayers saw a 5% decline in their average income.
As the job market deteriorated, the government promoted a job sharing campaign, whereby annual pay increases were frozen or annual salaries reduced to enable the employment of more people. Increased job sharing is another factor contributing to the country’s declining disposable income levels.
As the economy continued to struggle, consumers reduced spending on clothing, leisure pursuits and dining out, according to a survey conducted by the South Korea Chamber of Commerce. Outbound tourism, which saw annual double digit volume growth over the first three years of the review period, saw negative growth of 7% in 2008, followed by a further decline of 18% in 2009. However, domestic tourism saw growth of 9% in 2009, as South Koreans continued to struggle as a result of the ongoing fallout of the global economic crisis. Furthermore, in line with this tendency of pursuing cost-effective domestic holidays, increased consumer preference for mid- and low-priced accommodation was evident.
Outbound Tourism of South Korea
- Departures saw a turn down in 2008 after seeing double digit growth in each of the first three years of the review period. 2009 saw departures decline further as negative growth of 18% was recorded, largely due to economic uncertainty and the H1N1 pandemic. Compared with 2008, travel abroad became more affordable for Korean tourists following a strengthening of the won in the second half of 2009. However, the expected resultant increase in outbound tourism never materialised due to the global outbreak of the H1N1 virus.
- Outbound golf tourism decreased in popularity in 2008 and yet further in 2009. This was largely as a result of the ongoing impact which the global financial crisis had on the country, related to the increased price competitiveness of local golf courses.
- Outgoing tourists have became far more price-conscious since 2008, and the former reliance on package tours declined yet further in 2009 as a result of price increases driven by rising oil prices and a weakening of the South Korean won during the first half of 2009.
Destinations Korean’s Visit
China, being a relatively inexpensive destination due to its proximity, is the most popular destination for South Korean tourists, particularly first-time travellers. Departures to China declined in both 2008 and 2009.
Despite the decline seen in 2008 and 2009, China remained the most popular outbound destination, in accounting for 29% of all departures in 2009. Japan, the second most popular destination, accounted for 15% of all departures. Japan is a popular destination amongst South Koreans of all age groups because of the country’s wide variety of attractions, as well as its proximity. However, Japan’s high consumer prices and strength of the Japanese yen make it an unaffordable destination for many South Koreans.
Departures by Country of Origin
2004 2005 2006 2007 2008 2009
Australia 172.3 197.4 213.2 201.5 179.3 153.8
Canada 133.8 139.2 146.8 153.4 138.6 124.2
China 2534.8 3156.8 3512.8 4004.3 3520.4 2856.4
France 79.9 95.2 107.8 121 114 100.7
Germany 141.8 141.3 124 140.9 125.9 111.6
Hong Kong, China 86.4 105.6 98.2 106.7 109.1 107.4
India 305.4 403.3 512.6 636.7 684.7 571.6
Indonesia 228.4 252 280.5 327.8 369.1 356.8
Japan 1569.2 1734.8 1917.9 2345.8 2167.2 1463.8
Malaysia 91.2 158.2 189.4 224.9 267.5 234.5
Philippines 90.7 91.8 97.8 83.3 68.2 54.8
Russia 337.2 452 569 654 611 567.5
Singapore 52.9 54.7 47.5 56.1 51.9 47.3
Taiwan 190 269.1 368 396.6 363 325.6
Thailand 134.6 171.9 176.5 201.8 222.3 183.2
United Kingdom 754.1 781.3 898.8 881.2 759.6 613
USA 111.8 116 120.1 129.9 110.3 93.1
Vietnam 627.6 658.1 687.7 724.9 686.2 626.9
Other Countries of Origin 1118 1189.7 1008.7 889.7 870.7 789.4
Total 8760.1 10168.4 11077.3 12280.5 11419 9381.6
(Source: Euromonitor International)
Leisure – Outbound
The decline in outbound tourism witnessed in 2009 was mainly due to a decline in leisure departures. Leisure departures saw a decline of 20%, or close to 2 million people, in 2009 mainly as a result of the ongoing effects of the global financial crisis and the negative impact of the H1N1 virus.
Organised tour groups departures saw decline of 23% in 2009 as Koreans avoided expensive package holiday products. The proportion of total departures accounted for by organised tour groups saw a steady decline over the review period from 52% in 2005 to 40% in 2009. While organised tour groups showed a downwards trend, the number of free independent travellers (FITs) saw growth over the review period, although a decline was witnessed in 2009.
Business – Outbound
Business departures at 2 million in 2009 comprised 22% of total outbound tourists in 2009. MICE tourists accounted for 86% of total business departures in 2009.
The consistent flow of both leisure and particularly business tourists to the US left the country as the third largest destination for South Korean tourists in 2009.
Despite the fact that the H1N1 virus became widespread in the US following its initial outbreak, departures to the US only saw a decline of 9% in 2009, compared to the 18% decline seen in departures as a whole.
Inbound Tourism of South Korea
Following the strong arrivals growth of 8% witnessed in 2008, inbound tourism was further boosted by the declining value of the South Korean won against the US dollar and Japanese yen in 2009, leading to arrivals growth of 15%. Furthermore, inbound tourist receipts saw growth of 10% in 2009.
As the South Korean economy began to recover over the course of the year, the won strengthened and, as a result inbound tourism began to taper off from June 2009. While incoming tourist receipts increased by 10% in 2009, arrivals saw growth of 15%, as average spend per visitor declined.
While Hallyu, a term referring to the popularity of South Korean culture, artists and media content, particularly television dramas, still motivates Asian tourists to visit the country, the national tourist office increased its efforts to boost inbound tourism in the wake of the strengthening of the South Korean won.
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The Korea Tourism Organisation (KTO) issued coupon books for independent tourists travelling from Asia. These contained coupons issued by nearly 20 entities, including retailers, theatres, theme parks, restaurants and skin care shops, and offered discounts ranging from 5% to 50%. The coupon books were distributed through consulates and KTO’s English-language website.
Country of Origin
Arrivals from Japan saw growth of 28% in 2009 to reach 3 million, 45% of total arrivals. The strengthened value of the Japanese yen revived outbound tourism in Japan, and South Korea saw a surge in Japanese tourists in 2008. The Japanese tourist inflow increased further during the first four months of 2009, but slowed thereafter, as the Korean won began to strengthen against the Japanese yen. Furthermore the Japanese government recommend travel restrictions in light of the H1N1 virus outbreak. Despite these setbacks the arrivals growth of 28% seen in 2009 represented a significant improvement on the 6% recorded in 2008.
China was South Korea’s second largest source of inbound tourists in 2009 in accounting for 15% of total arrivals during the year. Arrivals from China saw growth of 10% in 2009, down from the 15% witnessed in 2008. According to the Korea Tourism Organisation, this decline was due to the failure of organised tour groups to attract sufficient tourist numbers in June and July. The majority of Chinese tourists to South Korea come in organised tours due to the incentives on offer from travel agents in collaboration with many related parties, including local government agencies eager to attract Chinese tourists.
Arrivals by Country of Origin
2004 2005 2006 2007 2008 2009
Australia 75.2 82.7 87.6 89 100.3 98.2
Canada 93 121.4 130 118.9 125.7 130.7
China 410.3 494.1 626.2 814.8 939.7 1031
France 35.2 38 40.6 46.6 52.3 52.6
Germany 59.7 66.4 67.2 74.1 78.2 83.8
Hong Kong, China 147 157 134.7 131.2 151.2 198.6
India 33.4 34.3 36.7 41 42.9 39.6
Indonesia 34.9 35.4 35.8 38.7 48.9 46.2
Japan 2409.9 2406.6 2310.4 2204.6 2345.6 2994.1
Malaysia 73 75 74.3 65.7 66.9 61.2
Philippines 60.3 62.9 69.3 70.3 75.2 74.4
Russia 76.7 62 61.3 62.9 66.2 66.9
Singapore 74.6 71.6 70.9 75.3 77 77.5
Taiwan 305.5 352.1 328.1 326.1 315 342.7
Thailand 70.1 77 88.6 99.5 116.9 134.3
United Kingdom 64.5 70.8 73.5 74.6 81.9 84.7
USA 535.8 556.1 637.3 659.6 674.8 661.3
Vietnam 20.3 27.3 28.9 37.8 51.6 60.8
Other Countries of Origin 319.1 329.3 339.9 364.3 389.3 420.3
Total 4898.5 5120 5241.3 5395 5799.6 6658.9
(Source: Euromonitor International)
South Korea’s capital, Seoul remained the most popular destination for arrivals in 2009, as more than 2.5 million inbound tourists visited the city. Inchon, Busan, Jeju, Daegu and Daejeon were the next most popular destinations.
Seoul offers a variety of attractions, including cultural treasures such as museums and palaces, as well as huge marketplaces, theme/amusement parks and beauty shops. Myongdong downtown area is host to a variety of activities, including shopping, dining out, skin care, and entertainment. The large number of inbound tourists visiting traditional marketplaces in 2008 and 2009 compensated for the reduction in local shoppers seen as a result of the economic downturn. According to a national tourist office survey, shopping remains one of the most popular activities amongst inbound tourists visiting South Korea.
The city of Incheon has seen arrivals growth in recent years not only because of its proximity to Korea’s largest international airport, but also due to the promotion of the new business centre located there.
A business hub, which uses Dubai as a benchmark, is being developed in Songdo on 1,500 acres of reclaimed land. With the planned city slowly taking shape, Incheon Metropolitan Government has been actively promoting Songdo globally as a venue for international events.
Leisure ‘ Inbound
Leisure arrivals, which saw growth of 17%, accounted for some 95% of total arrivals in 2009. The increase in leisure arrivals in the midst of the fallout from the global economic crisis was largely attributable to the weakening of the South Korean won.
Organised tour groups accounted for 35% of total arrivals in 2009. Organised tour groups remain the most popular way to travel to South Korea due to the language barrier involved for the majority of arrivals.
Business ‘ Inbound
Business arrivals saw a decline of 8% from 382,509 in 2008 to 349,211 in 2009. This decline was largely as a result of the global economic downturn, as companies reduced their spending on business travel.
The share of total business arrivals accounted for by Meetings, incentives, conferences and events (MICE) increased from 91% in 2008 to 93% in 2009. MICE arrivals were less affected than other types of business arrivals, as KTO has actively sought to attract them through its subsidiary, Korea Convention Bureau (KCB) since 1979. Furthermore, an increased number of large scale MICE events, such as the 2009 Herbalife Asia Pacific Extravaganza which attracted 20,000 attendees, were held in Seoul in 2009.
The national tourist office claims that South Korea is the twelfth-ranked country in terms of hosting international meetings. South Korea held 293 international meetings in 2008, up from 268 meetings recorded in 2007.
Efforts Made To Uplift Tourism
Domestic Tourism Sees Healthy Volume Growth
In the recent years South Koreans have turned to domestic travel, as outbound tourism became unaffordable for them, in the dire economic climate. Jeju Island, South Koreas most popular domestic holiday destination, due to its exotic subtropical climate and well established resorts, saw a record number of visitors in 2009. Furthermore there were a number of people who visited national parks as large percentage of population choose a relatively inexpensive holiday due to the recession.
The number of domestic tourists visiting campsites also grew significantly, partly due to the increased number of auto-campsites available, but also due to a growing consumer desire to save money.
Low Cost Carriers Achieve Higher Penetration
‘ Low cost carriers contributed to the growth seen in domestic tourism by providing affordable flights. The role of low cost carriers remains insignificant on international routes due to the limited number of routes covered. But low cost flights to domestic holiday destinations became increasingly popular in 2009, which helped South Korea’s four low cost carriers improve their position in domestic air travel. In general, air travel is not a popular mode of transportation for domestic travel, due to South Korea’s relatively limited size. However, it is the preferred mode for tourists looking to visit Jeju Island. The use of low cost carriers for the 30 minute flight to Jeju Island became commonplace amongst domestic tourists in 2009.
Medical Tourism as a Tourism Growth Driver
‘ The South Korean medical sector was subject to strict advertising restrictions under previous legislation. However, the government is now supporting its liberalisation in the hope of increasing competition. Hospitals will be allowed to advertise their services through television for the first time.
The liberalisation of South Korea’s medical sector is expected to promote the growth of medical tourism in the country. South Korea’s advanced medical resources and competitive prices are expected to see the country become an increasingly important medical tourist destination. Some travel retailers have already taken steps to establish themselves as leaders in this emerging field.
In 2007, 6.4 million foreign tourists visited South Korea, making it the 36th most visited country in the world and this number is expected to exceed 8.5 million in 2010. Most non Korean tourists come from Japan, China, Taiwan and Hong Kong.
The recent popularity of popular culture in these countries has increased tourist arrivals. Seoul is the principal tourist destination for visitors; popular tourist destinations outside of Seoul include Seorak-san national park, the historic city of Gyeongju and semi-tropical Jeju Island. Traveling to North Korea is not normally possible without a special permission, but in recent years organized group tours have allowed groups of South Korean citizens to visit Kumgang-san.
The Positive and Negative Social and Environmental Impacts of Tourism
Socially tourism has a great influence on the host societies. Tourism can be both a source of international amity, peace and understanding and a destroyer and corrupter of indigenous cultures, a source of ecological destruction, an assault of people’s privacy, dignity, and authenticity.
Here are possible positive effects of tourism:
- Developing positive attitudes towards each other
- Learning about each other’s culture and customs
- Reducing negative perceptions and stereotypes
- Developing friendships
- Developing pride, appreciation, understanding, respect, and tolerance for each other’s culture
- Increasing self-esteem of hosts and tourists
- Psychological satisfaction with interaction
So, social contacts between tourists and local people may result in mutual appreciation, understanding, tolerance, awareness, learning, family bonding respect, and liking. Residents are educated about the outside world without leaving their homes, while their visitors significantly learn about a distinctive culture. Local communities are benefited through contribution by tourism to the improvement of the social infrastructure like schools, libraries, health care institutions, internet cafes, and so on. Besides, if local culture is the base for attracting tourists to the region, it helps to preserve the local traditions and handicrafts which maybe were on the link of the extinction.
On the other side tourism can increase tension, hostility, and suspicion. Claims of tourism as a vital force for peace are exaggerated. Indeed there is little evidence that tourism is drawing the world together (Robinson 1999). In this context economic and social impacts on the local community depend on how much of the incomes generated by tourists go to the host communities. In most all-inclusive package tours more than 80% of travellers’ fees go to the airlines, hotels and other international companies, not to local businessmen and workers.
On the other hand large hotel chain restaurants often import food to satisfy foreign visitors and rarely employ local staff for senior management positions, preventing local farmers and workers from reaping the benefit of their presence. Tourism has the power to affect cultural change. Successful development of a resource can lead to numerous negative impacts. Among these are overdevelopment, assimilation, conflict, and artificial reconstruction. While presenting a culture to tourists may help preserve the culture, it can also dilute or even destroy it. The point is to promote tourism in the region so that it would both give incomes and create respect for the local tradition and culture. There are also both negative and positive impacts of tourism on the local ecology. Tourism often grows into mass-tourism. It leads to the over consumption, pollution, and lack of resources.
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