The report of “Tourism Investment Monitor 2016-17”, under Tourism Research Australia (TRA), represents the number as well as value of some significant projects during the year 2016-17. This project is related to tourism investment pipeline of this country and considers tourism infrastructure as well as various categories of investment. According to the report, total amount of investment pipeline in this sector was $ 37.8 billion to undertake 294 projects.
Within this investment, $10.1 billion was invested in aviation sector for conducting 19 projects regarding the airport infrastructure. In addition to this, for 83 infrastructure projects related to arts, recreation and business services $17 billion was invested (McLennan, Becken and Moyle 2017). Furthermore, $10.8 billion was invested for accommodation considering 102 projects. Foreign investors support the pipeline investment, especially accommodation projects and provide significant amount of money for supporting the project. In this context, it is essential to describe the tourism environment of this country briefly.
This is because tourism sector plays significant role to develop economic condition of Australia by attracting investors. The entire tourism sector experienced improvement between 2011-2012 and 2016-17. The demand for hotels, motels along with serviced apartment was increased by 21 % within this period (Pham, Nghiem and Dwyer 2017). In addition to this, the number of inbound passengers on airlines as well as passengers on domestic flights and expenditure on total tourism also increased significantly within this time gap.
To meet this huge demand, the specified sector had also intended to increase the number of room supplied between 2011 and 2016. Consequently the occupancy rates of tourism section increased in Sydney and Melbourne by significant amount. Therefore, it is expected that the sector will develop further as the demand from foreign visitors will increase in future.
According to Tourism Forecasts (2017), the expenditure in tourism sector will be increased at 6.3 percent per annum. As a result, a strong amount of investment is required in tourism industry of this country for maintaining adequate supply with growing demand.
Therefore, this concept can be described with the help of basic microeconomic concept of demand and supply. The economy of a particular sector reaches to equilibrium point when demand equates with supply. However, this stable situation can be changed if the respective sector experiences excess demand or excess supply. In tourism sector, excess demand occurs and this further creates insufficient accommodation for tourists. In this situation, hotel price as well as flight fare also increase significantly (Williams 2017). The situation of excess demand can be described with the help of following diagram.
The above figure represents demand and supply in tourism sector of Australia. The sector experiences Q1Q2 amount of excess demand in this sector at P1 price. This further tends the market to increase the price up to P0, which is the equilibrium price. To increase supply, the market requires significant amount of investment.
According to the report of World Investment 2017, Australia received inward foreign direct investment (FDI) worth US$48 billion in 2015. This in turn makes the country as the eighth most attractive destinations for investors as of 2016. According to the United Nations Conference of Trade and Development (UNCTAD), the country has remained among the top ten destinations across the world in terms of FDI since 2011. Arts, recreation as well as business service help the tourism infrastructure to develop further.
This in turn increases the demand of tourists in Australia. In this context, it can also be mentioned that optimistic condition of tourism economy along with significant growth of visitors helps hotel market of Australia experience strong trading condition (Lee and Yuan 2017). In addition to this, sufficient investment in tourism infrastructure also stimulates foreign investors to invest more that further increase total supply of hotels and other infrastructure in this market. From the entire consequences it can be said that the country has more opportunity to develop further with the help of this business sector.
According to the given scenario, hospitality industry in Australia experiences perfectly competitive market. This happens due to large number of hotel accommodation providers as well as large number of buyers. Each hotel room provider provides almost same room to buyers and consequently none of them can change the market price (D’Amato, Valentini and Zoli 2017). Therefore, those providers along with buyers act as price taker. In this context, the government of this country intends to impose specific tax on buyers on hotel accommodation.
Suppose, before this tax imposition, each hotel charges equilibrium price to their buyers. However, after imposition of tax, the hotel price increases to buyers. As a result, they reduce their demand for hotel accommodation and this will lead the demand curve to change further. This in turn changes consumer surplus, producer surplus and total surplus in the respective market (Blaine et al. 2015). The following diagram can describe this situation precisely.
The above diagram represents a perfectly competitive market for hotel accommodation, where the market experiences equilibrium at price P0. At this situation, the amount of consumer surplus and producer surplus are equal to the area of triangle ACP0 and FCP0. Therefore, the amount of total surplus is equal to the area of triangle FCA. After imposition of buyer’s tax, the demand curve will shift downwards to D1 and consequently the equilibrium price reduces to P1. At this moment, the amount of consumer surplus and producer surplus become equal to the area of triangle BDP0 and FDP1. Thus, total surplus becomes the area of triangle FDB. Therefore, after tax imposition, equilibrium price, consumer surplus and producer surplus decrease in the hospitality market of Australi
According to figure 2, total surplus or social welfare decreases in the market after imposition of buyer’s tax. This is because buyers now pay more amounts for hotel accommodation and this further reduces their demand. As a result, total revenue of hotel suppliers reduces (Saez and Stantcheva 2016). Therefore, producer surplus decreases in the market and this in turn reduces social welfare accordingly.
Initially, the hospitality market does not possess any government revenue in the perfectly competitive market. In this free market, market price generates when marginal cost curve equates with marginal revenue curve (Arbetman and Kugler 2018). However, after imposition of buyer’s tax, the government revenue generates by the rectangular area P1DFP2. Therefore, from this discussion it can be concluded that buyer’s tax helps the government to increase revenue.
The chief motive of Australia’s tourism industry is to increase investment for fulfilling increasing demand for hotels and other accommodations of tourists. However, it is essential to understand that whether this investment is a prudent economic policy or not. To understand this situation, proper statistical data for both short run and long run are required (Divisekera and Nguyen 2018). However, before this discussion it would be better to describe the role of this specified industry in Australia’s economy.
The tourism industry is considered as an essential component in this economy. During 2014-15, this sector contributed 3 percent to country’s total gross domestic product (GDP). This implies that tourism sector of Australia contributes AUD 47.5 billion to Australia’s national income (Ellem and Tonts 2018). The domestic tourism plays significant role, as captures 73 percent in this sector.
Previous data can be obtained from some literatures. In 2016, the country has invested AUD 21.7 billion in travel and tourism sector and this has been accounted for 5.1 percent of total investment. Total investment in this year has USD 16.1 billion. According to market forecast, this amount of investment will increase by 2027 at 2.3 percent per annum (Dwyer 2018). To understand that whether investment is right policy or not empirical evidences for the last few years are essential.
According to the report of World Travel & Tourism Council (WTTC), the travel and tourism sector in Australia has increased significantly and generated employment opportunity and wealth creation by significant amount. During the long term, this sector is going stronger as investment takes place sustainably in an open manner. According to some previous literatures, investment expenditure in travel and tourism sector is considered as an important concept for both short run and long run activity. This activity considers construction of new hotels and purchase of new aircraf
According to above diagram, capital investment in Australia’s travel and tourism sector has remained high since 2007 at a constant price of 2016. This rate of investment has increased constantly at an increasing rate.
To support this tourism industry, the Australian government gives various commitments for supporting and developing tourism infrastructure. This further can increase the demand by Tourism 2020, which is a government strategy. In this context, Austrade gives coordinated assistance of the government to attract, promote and facilitate foreign direct investment.
This investment is considered as productive into tourism infrastructure of this country, as it makes partnership with Tourism Australia. According to economists, the country requires significant investment to develop tourism infrastructure for developing significantly in international and domestic tourism market. As a result, this sector receives priorities as one of the five chief investments in order to drive infrastructure in this sector considering hotels and airports.
According to above figure, the amount of foreign direct investment has fluctuated drastically in Australia for the last 10 years. After 2013, this amount has started to fall continuously and reached to minimum point during 2015. After this year, the amount has started to increase continuously and has reached to maximum point in 2016 (Russell-Smith et al. 2018). This foreign direct investment also has influenced the tourism sector in Australia significantly. As a result, the specified sector has changed accordingly.
The figure 5 represents sharply that the specified tourism industry of Australia provides significant amount to this country’s national income. This contribution has increased continuously over the year since 1995 and has reached at a higher level during 2011 to 2015 (Valadkhani and O’Mahony 2018). From this, it can be said that increasing foreign direct investment has influenced tourism industry Australia significantly over the year.
To provide key priority to Tourism 2020, the Australian Government along with state and territory governments intends to show active encouragement in the context of investment in the tourism industry. In addition to this, the government implements various regulations to improve the environment of investmen
There are some other countries except Australia, where large number of tourists visit each year. These countries are France, the United States and Spain. It would be beneficial to describe each of these tourism sectors briefly. In France, this sector contributes almost 77.7 billion Euros to the country’s national income. Within this contribution, 30 percent comes from international tourists while 70 percent comes from domestic sources. Therefore, total contribution of this travel and tourism sector of France is 9.7 percent of GDP and consequently this sector generates 2.9 million jobs. As a result, this sector plays significant role in the country’s balance of payments.
As per the above figure, this specified sector contributes significant amount directly in terms of 2016 prices of Euro. Since 2007, this amount has remained at a higher level and has not fluctuated significantly (Isik, Dogru and Turk 2018). From this statistical data, it can be stated that tourism industry takes a vital role to economic condition of France.
According to above figure, the travel and tourism industry has generated huge number of jobs since 2007. This number has not fluctuated significantly over the years. This implies that France has made a strong tourism infrastructure and consequently has made a strong tourism environment. In 2016, the country has welcomed 83 million international tourists from all over the world. To promote this economic sector, the French Government has considered some measures to give priority to six important areas. Firstly, the government focuses on the quality of security and hospitality to improve satisfaction as well as loyalty of tourists.
Second important issue is a structured tourism sector that further can attract tourists from overseas. Thirdly, the government supports investments and considers this as the fundamental strategy of the government (Solarin 2018). Fourthly, the French government intends to provide training and employment opportunity for provide a standard service to tourists with higher quality. Fifthly, the government also intends to take help from digital and information technology to make a competitive environment for this sector. With the help of this modern technology, the tourism industry of France can compete with other countries successfully. Sixthly, the country tries to access holidays as much as they can for accessing many people.
The tourism industry in the United States has become the largest one that serves huge number of both international and domestic tourists in every year. The natural beauty along with arts and cultures attract tourists every year. The specified sector has generated more than USD 1.5 trillion during 2016. In addition to this, this sector generates 7.6 million jobs (Wittwer 2017). According to the statistical data of the US government, one person out of 18 US citizens work in this sector directly or indirectly. In 2016, the tourism sector has contributed 2.7 percent to gross domestic product of the USA (Selectusa.gov 2018). In 2012,
the president of the USA has made a special Task Force for making travel and tourism sector more competitive through implementing various strategies. The chief focus of this Task Force is to increase the number of international visitors up to 100 million by 2021. Among various strategies, this task force has intended to expedite the processing of Visa for international tourists, especially from some expanding economies, such as Brazil and China. In addition to this, the government takes the Visa Waiver Program (VWP) that permits citizens of different countries to travel in this country without any visa.
Another country is the United Kingdom, where tourism industry contributes significant to gross domestic product. The foreign tourist industry has developed significantly and become the sixth largest one across the world. In 2015, this country experiences USD 22.072 billion visitors. However, after Brexit, this number has started to fall since the end of 2016. This further affects the UK economy adversely. However, the government tries to attract more tourists across the country through implementing proper strategy.
After discussing three major tourism destinations, the report can recommend some policies through applying which the Australian government can improve the condition of this specified sector. It has been observed that Australia focuses chiefly on investment to improve economic condition of this specified industry (Martín Martín et al. 2018). However, it is also essential improve the quality of hospitality in this sector for attracting foreign tourists. For this, the government may hire more qualified staffs in hotel and aviation industries.
References:
Arbetman, M. and Kugler, J., 2018. Relative political capacity: Political extraction and political reach. In Political capacity and economic behavior (pp. 11-45). Routledge.
Austrade.gov.au 2018. Tourism and Investment – Austrade.
Blaine, T.W., Lichtkoppler, F.R., Bader, T.J., Hartman, T.J. and Lucente, J.E., 2015. An examination of sources of sensitivity of consumer surplus estimates in travel cost models. Journal of environmental management, 151, pp.427-436.
D’Amato, A., Valentini, E. and Zoli, M., 2017. Tradable quota taxation and market power. Energy Economics, 63, pp.248-252.
Divisekera, S. and Nguyen, V.K., 2018. Determinants of innovation in tourism evidence from Australia. Tourism Management, 67, pp.157-167.
Dwyer, L., 2018. Future economic development in tourism. Strategic Management in Tourism, CABI Tourism Texts, p.30.
Ellem, B. and Tonts, M., 2018. The global commodities boom and the reshaping of regional economies: the Australian experience. Australian Geographer, 49(3), pp.383-395.
Isik, C., Dogru, T. and Turk, E.S., 2018. A nexus of linear and non?linear relationships between tourism demand, renewable energy consumption, and economic growth: Theory and evidence. International Journal of Tourism Research, 20(1), pp.38-49.
Lee, K.W. and Yuan, J.J., 2017. Hospitality and Tourism Industry Segments: Toward a New Taxonomy. e-Review of Tourism Research, 14(1/2).
Martín Martín, J., Guaita Martínez, J. and Salinas Fernández, J., 2018. An Analysis of the Factors behind the Citizen’s Attitude of Rejection towards Tourism in a Context of Overtourism and Economic Dependence on This Activity. Sustainability, 10(8), p.2851.
McLennan, C.L.J., Becken, S. and Moyle, B.D., 2017. Framing in a contested space: Media reporting on tourism and mining in Australia. Current Issues in Tourism, 20(9), pp.960-980.
Pham, T.D., Nghiem, S. and Dwyer, L., 2017. The determinants of Chinese visitors to Australia: A dynamic demand analysis. Tourism Management, 63, pp.268-276.
Russell-Smith, J., Sangha, K.K., Costanza, R., Kubiszewski, I. and Edwards, A., 2018. Towards a Sustainable, Diversified Land Sector Economy for North Australia. In Sustainable Land Sector Development in Northern Australia: Indigenous Rights, Aspirations, and Cultural Responsibilities. CRC Press Boca Raton USA.
Saez, E. and Stantcheva, S., 2016. Generalized social marginal welfare weights for optimal tax theory. American Economic Review, 106(1), pp.24-45.
Selectusa.gov 2018. Travel, Tourism & Hospitality Industry Spotlight | SelectUSA.gov.
Solarin, S.A., 2018. Does tourism-led growth hypothesis exist in Mauritius? Evidence from disaggregated tourism markets. Current Issues in Tourism, 21(9), pp.964-969.
Tradingeconomics.com 2018. Australia Foreign Direct Investment | 2018 | Data | Chart | Calendar.
Valadkhani, A. and O’Mahony, B., 2018. Identifying structural changes and regime switching in growing and declining inbound tourism markets in Australia. Current Issues in Tourism, 21(3), pp.277-300.
Williams, G., 2017. The airline industry and the impact of deregulation. Routledge.
Wittwer, G., 2017. Multi-Regional Dynamic General Equilibrium Modeling of the US Economy. Springer.
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