The Growing Importance of Tourism in the Global Economy and International Affairs

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Tourists view the Shanghai skyline in 2013 (Wikimedia Commons)

Tourists view the Shanghai skyline in 2013 (Wikimedia Commons)

Despite wars, political turmoil, natural disasters, medical scares, terrorist attacks, and economic and energy crises in various parts of the world, international trade in tourism services has grown spectacularly since the 1970s. In 2012, international tourist arrivals worldwide reached 1.035 billion. Slightly over half of them were on leisure trips. By comparison, there were just 166 million international tourist arrivals worldwide in 1970. The 2012 visitors spent $1 trillion on travel (excluding international passenger transportation expenses valued at $213 billion). Directly and indirectly, their spending accounted for nine percent of the world’s GDP and six percent of its exports.

For tourism-dependent countries and destinations, tourism’s share of GDP can exceed twice the world average. Today, international tourism receipts exceed $1 billion per year in some 90 nations. Worldwide, domestic tourism is typically several times larger. Tourism truly has become a global economic and social force.

It used to be that only developing countries actively pursued tourism exports as a key development strategy. Japan and the United States, for example, have historically paid little attention to luring tourists to their shores. This is no longer the case. Recently, both countries have implemented policy changes and relaxed visa regulations to promote inbound foreign travel, create jobs, and stimulate their sluggish economies. In 2013, Japan hosted 10 million foreign visitors—an all-time high. It hopes to double that number by the Tokyo Summer Olympics in 2020, and reach 30 million by 2030. The United States, widely perceived as a nation unfriendly to foreign visitors due to its strict entry regulations, is trying hard to improve its international image. It achieved a record 67 million international visitor arrivals in 2012, and President Obama has set a goal of attracting 100 million by 2021.

Travel is costly. Historically, only wealthy individuals could afford to travel abroad, and they tended to travel to affluent countries with quality tourism infrastructure and services. Not surprisingly, Europe and North America have been the largest sources and recipients of international tourists. But this, too, is changing. In recent decades, tourist arrivals in emerging countries have grown much faster than in developed ones. The Asia-Pacific region has seen—and will continue to see—the fastest growth. The United Nations World Tourism Organization (UNWTO) predicts that international tourism arrivals will grow by 3.3 percent per year between 2010 and 2030 and reach 1.8 billion total arrivals by 2030. Growth in emerging countries is expected to be twice as fast as in advanced ones. Tourism’s market share in emerging countries is predicted to rise to 57 percent by 2030, compared to 47 percent in 2012. The challenge of how to direct the economic benefits of tourism to the world’s poorest areas and populations, however, remains.

While growing affluence and falling real travel costs have been primary reasons for the surge in post-1970s international travel, changes in government travel policies have also played an important role. Japan is one example of this phenomenon. Japanese citizens were prohibited from traveling abroad for pleasure until after the Tokyo Olympics in 1964, and currency restrictions on foreign travel remained in effect until the late 1970s. For many developing countries, including Japan, banning foreign leisure travel was intended to conserve scarce foreign exchange needed to finance industrialization. Eventually, with large and growing trade surpluses, the liberalization of outbound travel helped to defuse international political tensions stemming from trade imbalances. In the late 1980s, the Japanese government actively encouraged travel abroad and, by 1989, Japan led the world in international tourism spending. It currently sits in eighth place.

China also illustrates this trend. The country was essentially closed to the outside world during the Cultural Revolution (1966-1976). Its subsequent opening led to a spike in foreign arrivals that have made China the world’s third most-visited country, receiving almost 60 million tourists in 2013. Outbound travel came much later. In the late 1980s, China began to formalize an outbound travel liberalization policy that allowed its citizens to travel abroad in tightly controlled, escorted group tours to countries that had been granted “Approved Destination Status” (ADS). Why—and when—some countries are awarded ADS remains something of a mystery. But China has not hesitated to use ADS awards as “soft power” tactics to gain political advantage in international affairs. No country that politically recognizes Taiwan has received ADS, even though China granted ADS to Taiwan itself in 2008. Several political disputes between Canada and China apparently delayed Canada’s ADS designation until 2010. Nonetheless, even with only partial liberalization, China has overtaken Germany and the United States to become the world’s number one source of international tourists (83.2 million trips in 2013). Its tourists are also the world’s largest spenders, lavishing $102 billion abroad in 2012.

As travel barriers have gradually lowered, international tourism has flourished—but not without its criticisms. Public awareness of tourism’s potential negative spillovers has increased. In recent years, the aviation industry’s contribution to global climate change has become a highly publicized and contentious global issue. According to the David Suzuki Foundation, the aviation industry “accounts for four to nine percent of the total climate change impact of human activity.” The European Union estimates that aviation greenhouse gas emissions in the EU have doubled since 1990. Today, 52 percent of international tourist travel is by air, and that number is rising. International travel has become a convenient target for those who want to moderate adverse impacts on climate change. Efforts by the EU to unilaterally impose carbon taxes on airlines using its airspace, however, have met with fierce resistance from the United States, China, Russia, and emerging countries. It is unclear how this contentious issue will play out. What is clear is that tourism has ascended to a more prominent position in international affairs in recent years.

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Carl Bonham is the Executive Director of the University of Hawaii Economic Research Organization (UHERO) and a professor of economics at the University of Hawaii at Manoa. His research interests include macroeconomics, applied econometrics and forecasting, tourism economics, and the Hawaii economy. His recent publications include “Forecasting with Mixed Frequency Factor Models in the Presence of Common Trends” (2013) with Peter Fuleky in Macroeconomic Dynamics, and “Estimating demand elasticities in non-stationary panels: The case of Hawaii tourism” (2014) with Peter Fuleky and Qianxue Zhao in the Annals of Tourism Research. James Mak is a fellow with the University of Hawaii Economic Research Organization. His research interests focus on tourism policy analysis from an economics perspective. He is the author of Tourism and the Economy: Understanding the Economics of Tourism (2004) and Developing a Dream Destination, Tourism and Tourism Policy Planning in Hawaii (2008), both published by the University of Hawaii Press.

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