Thai Tourism and Economic Development Essay Example for Free

Thai Tourism and Economic Development Essay The tourism industry is currently the worldà »s largest and most diverse business sector since it serves as a primary source for generating revenue, employment, private sector growth, and infrastructure development for many countries. Researchers have argued that tourism development not only stimulates the growth of the industry, but also triggers overall economic growth (Lee and Chang, 2008). Hence, enhancing economic growth by promoting the tourism industry has become an important economic development strategy in most developing countries (Chen and Chiou-Wei, 2009). This belief is consistent with one of the three relevant hypotheses regarding the relationship between tourism development and economic expansion—namely, the tourism-led economic growth hypothesis, the economic-driven tourism growth hypothesis, and the reciprocal causal hypothesis. Economists emphasize the economic effects of tourism on the economy. The speedy growth of tourism causes an increase in household incomes and government revenues through multiplier effects, improvements in the balance of payments, and growth in the number of tourism-promoted government policies. As such, the development of tourism has usually been considered a positive contribution to economic growth (Lim, 1997; Oh, 2005). To date, there has been a vast amount of research conducted on the economic impact of tourism activity but the literature provides mixed results, with different studies arriving at different conclusions. Some of these studies, such as Ghali (1976), Balaguer and Cantavella-Jorda (2002), Dritsakis (2004a), Oh (2005), Kim et al. (2006), Lee and Chien (2008), reported results regarding the relationship between tourism and economic growth, but an explicit result is not obvious. A careful empirical analysis, such as the one shown in this study, is desirable for any country that may want to focus on the tourism industry as part of its national economic development policy. Thailand embraces a rich diversity of cultures and traditions. With its proud history, tropical climate and renowned hospitality, Thailand offers great potential for the development of tourism (Tourism Authority of Thailand, 2008a). Henkel et al. (2006) provide an extensive discussion of the various studies that have been conducted to determine the perceptions of international visitors about the image of Thailand. The results found that Thai residents and international visitors confirmed that cultural sightseeing, friendly people and food were significantly important when thinking of Thailand as a tourist destination, while international visitors felt that nightlife and entertainment were significantly more important than that of Thai residents. As McKinnon (1964) argued, international tourism brings foreign exchange that can be used to import intermediate and capital goods to produce goods and services, which in turn leads to economic growth. Foreign tourism is Thailandà »s largest export industry. Sales of tourism goods and services to international visitors averaged US$10.2 billion in 1998†º2005 on more than 10 million annual visitor arrivals. During 1998†º2005, on average, Thai tourism directly and indirectly accounted for 13 percent of Gross Domestic Product (GDP) and 10 percent of employment which is approximately 3 million jobs and 12 percent of investment. Using the industryà »s GDP share as a measurement, Thailand INTRODUCTION The tourism industry is currently the worldà »s largest and most diverse business sector since it serves as a primary source for generating revenue, employment, private sector growth, and infrastructure development for many countries. Researchers have argued that tourism development not only stimulates the growth of the industry, but also triggers overall economic growth (Lee and Chang, 2008). Hence, enhancing economic growth by promoting the tourism industry has become an important economic development strategy in most developing countries (Chen and Chiou-Wei, 2009). This belief is consistent with one of the three relevant hypotheses regarding the relationship between tourism development and economic expansion—namely, the tourism-led economic growth hypothesis, the economic-driven tourism growth hypothesis, and the reciprocal causal hypothesis. Economists emphasize the economic effects of tourism on the economy. The speedy growth of tourism causes an increase in household incomes and government revenues through multiplier effects, improvements in the balance of payments, and growth in the number of tourism-promoted government policies. As such, the development of tourism has usually been considered a positive contribution to economic growth (Lim, 1997; Oh, 2005). To date, there has been a vast amount of research conducted on the economic impact of tourism activity but the literature provides mixed results, with different studies arriving at different conclusions. Some of these studies, such as Ghali (1976), Balaguer and Cantavella-Jorda (2002), Dritsakis (2004a), Oh (2005), Kim et al. (2006), Lee and Chien (2008), reported results regarding the relationship between tourism and economic growth, but an explicit result is not obvious. A careful empirical analysis, such as the one shown in this study, is desirable for any country that may want to focus on the tourism industry as part of its national economic development policy. Thailand embraces a rich diversity of cultures and traditions. With its proud history, tropical climate and renowned hospitality, Thailand offers great potential for the development of tourism (Tourism Authority of Thailand, 2008a). Henkel et al. (2006) provide an extensive discussion of the various studies that have been conducted to determine the perceptions of international visitors about the image of Thailand. The results found that Thai residents and international visitors confirmed that cultural sightseeing, friendly people and food were significantly important when thinking of Thailand as a tourist destination, while international visitors felt that nightlife and entertainment were significantly more important than that of Thai residents. As McKinnon (1964) argued, international tourism brings foreign exchange that can be used to import intermediate and capital goods to produce goods and services, which in turn leads to economic growth. Foreign tourism is Thailandà »s largest export industry. Sales of tourism goods and services to international visitors averaged US$10.2 billion in 1998†º2005 on more than 10 million annual visitor arrivals. During 1998†º2005, on average, Thai tourism directly and indirectly accounted for 13 percent of Gross Domestic Product (GDP) and 10 percent of employment which is approximately 3 million jobs and 12 percent of investment. Using the industryà »s GDP share as a measurement, Thailand was ranked 60 out of 174 countries in the World Tourism and Travel Councilà »s Tourism Satellite Accounts in 2005 (Wattanakuljarus and Coxhead, 2008). Thailand has always been a great travel destination for business travelers and tourists from neighboring countries. Over the period 1998†º2007, the total number of tourist arrivals to Thailand increased from 7.76 to 14.46 million. International tourism revenue in Thailand increased from 242,177 million baht in 1998 to 547,782 million in 2007 (Tourism Authority of Thailand, 2008b). Further analysis shows that international visitors came from countries within the neighboring Asian region, which provided nearly 53.91 percent of all visitors in 2007. The top five countries of residence for Thailandà »s inbound tourists in 2007 were Korea (9.44%), Japan (9.09%), Malaysia (7.32%), the United Kingdom (5.55%) and China (5.47%). As mentioned, the Thai economy depends heavily on the performance of its tourism industries. Specifically, the millions of jobs and a substantial fraction of export earnings and a wide range of other industries are directly or indirectly interdependent with tourism management. Therefore, this paper focuses on reviewing the potential relationship between Thai tourism development and economic growth. There have been a number of empirical studies that have focused on investigating the relationship between tourism development and economic growth both in one country and in a cross- sectional context. The main purpose of this introduction is to review the general literature on tourism development and economic growth. The remaining four sections of the paper present first, the role of tourism development and economic growth in the Thai economy, followed by two sections covering a literature review of tourism development and economic growth in both first the international and then the Thai context. The last section provides conclusions. TOURISM SITUATION IN THAILAND According to the Tourism Authority of Thailand (2008b), the World Tourism Organization estimated that the average growth of international tourists in 2005 would be 5.5 percent (lower than in 2004, when the growth of world tourism experienced a 10 percent expansion), with 808 million international tourists. However, the tourism industry saw a slowdown, as a result of the world economic downturn. The region which was expected to grow at a higher rate was the Asia Pacific (+10%) owing to the fact that tourists paid more attention to finding new attractions in this region, especially in Cambodia, Vietnam, India, and China, where there was high growth in the number of visitors. Other regions with lower expected growth rates were Africa (+7%), the Americas (+6%), Europe (+4%), and the Middle East (+3%). During 1998†º2007, the number of tourist arrivals to Thailand almost doubled both in the international and domestic context (See Tables 1 and 2). Consistent with the increase in arrivals, the international tourism revenue of Thailand almost doubled. In Thailand, the tsunami disaster and disturbance in the three southern provinces, as well as the increased market competition from new destinations (Vietnam, China, and India) and tourism product creation (Japan, Hong Kong, and Korea) were key factors in Thailandà »s steady tourism growth in 2005, with 11.52 million inbound visitors. However, this slowdown was not as severe as it could have been, due to the attempts of the public and private sectors to stimulate markets and restore the attractions affected by the disaster as fast as possible. These actions resulted in the slight impact as shown in the above-mentioned statistics of the Thai tourism industry (Tourism Authority of Thailand, 2008b). ROLES OF TOURISM IN THE THAI ECONOMY Tourism is one of the worldà »s largest industries and one of its fastest growing economic sectors. In many countries, tourism is a main strategy for regional development, as it stimulates new economic activities. Tourism may have a positive economic impact on the balance of payments, on employment, and on gross income and production, but it may also have negative effects, particularly on the environment. However, unplanned and uncontrolled tourism growth can result in such deterioration of the environment that tourist growth can be compromised (Creaco and Querini, 2003). Thai governments have placed great store on earnings from tourism; spending in support of the industry accounts for about 3 percent of total government budget outlays. These expenditures have supported a range of promotional programs; in the past decade; for example, there has been à §Visit Thailand Yearà ©, à §Thailand: the Gateway to Indochinaà ©, à §Amazing Thailandà © and à §Unseen Thailandà ©. According to Wattanakuljarus and Coxhead (2008), tourism is an increasingly popular component of the development strategy in low-income countries based on three reasons. First, that tourism can serve as a substantial source of foreign exchange earnings, so contributing to economic growth. Second, that tourism services are labor-intensive, so expansion of this industry will create jobs and improve income distribution. Third, that tourism is a à §cleanà © industry, that is, its growth is good for the environment. Consistently, Diamond (1977) examined the tourismà »s role in economic development and confirmed that in search of remedies for persistent balance-of- payments deficits, governments in developing countries and international aid agencies have been attracted to international tourism. The study argued that not only can tourism relieve the shortage of foreign exchange constraining industrial expansion and alleviate the growing problem of urban unemployment, but in the long run tourism will provide a price- and income- elastic substitute for staple exports facing less favorable demand conditions. Tourism expansion in Thailand certainly creates jobs for unskilled workers, and this has a direct poverty alleviation impact. However, much of the gain from tourism growth accrues to factors other than unskilled labor, so income distribution may actually worsen. In addition, low-skilled jobs in other sectors may be destroyed, and returns to agricultural land, from which the poor derive a considerable share of their income, may fall as tourism expands (Wattanakuljarus and Coxhead, 2008). Government efforts to promote tourism growth may thus be inconsistent with the goal of reduced income inequality.