Mon. Mar 30th, 2020

Tourism is a key component to Jamaica’s economy

I love to travel, but something has repeatedly caught my attention when I explore new places around the world. I have noticed that some of the most luxurious resorts and destinations are surrounded by poverty and economic depression.

I have often wondered why large tourist destinations stand in stark contrast to economic depression. As I took trips to different places such as Africa and the Caribbean, my interest in this topic was continually sparked. I decided to find out how the larger surrounding areas were being affected economically specifically by exploring the economic impact of all-inclusive resorts in Jamaica.

Tourism is undoubtedly a key component to Jamaica’s economy. In 2015, the overall contribution from tourism as a whole, including direct, indirect, and induced contributions, was over 35 percent of the entire GDP. “Today, the tourism industry in Jamaica is one of the most important economic sectors, and its impact on the country is enormous.” The island of Jamaica is a desirable destination for travelers and vacation seekers, and it would be extremely economically harmful to eliminate or even reduce tourism. Tourism is essential to the Jamaican economy, however there are clearly major economic problems with the current development and execution of tourism today.

One major problem is that “all-inclusive resorts in Jamaica have been unable to maximize the tourism industry and find long-term solutions to improve Jamaica’s standard of living.” This is partially due to the fact that Jamaica is very dependent on other countries for the products they need to satisfy the wants of tourists. Because they must import different foods and products for their customers, there is larger leakage and outflow of money from Jamaica. “Leakage is the unwanted leaving of money from a country as a result of taxes, wages, imports, and profits that are paid outside the country.” This leakage is a problem because it prevents money from flowing back into the country and stimulating the local economy. Information from UNEP showed that “only $5 out of every $100 spent on a “vacation package” (typically, all-inclusive) by an overseas traveler stays in the developing country’s economy.” Another issue that contributes to leakage is the fact that many of the all inclusive resorts are based in other countries and so much of the money is required to go back to the main owner of the company. With only five percent of money made flowing back into the local economy, it is no surprise these areas are struggling economically.

Many people believe the Jamaican government should protect the local community by having infant industry local businesses. This means the government requires that the people only buy local products. This gives the locals companies an advantage which at first seems appealing. The argument is since the local economy is suffering, the government should require all-inclusive resorts to buy the local products to stimulate the economy. While this initially sounds like a good idea, the problem is that while this is good for the local companies, the tourism industry as a whole would suffer because this would trigger an increase in price which would in turn cause a decrease in demand for tourism. The plan would then backfire because tourism is the main way Jamaica makes money. This negative side is one people often do not see. It is easy to only look at the positive side of this argument, however this “fix” would be temporary and may even cause greater issues in the future. This would be as if Ford was an infant industry: Ford would be happy, but all Americans consumers would be disadvantaged because the options of importing much cheaper cars would be taken away.

In addition, if local businesses are infant industry businesses, this reduces the incentive for businesses to create new and improved products because there is less competition. They know they are protected by the government and therefore do not have an incentive to continually improve their products. This affects tourism because the consumers will have fewer options. Since the demand curve is elastic for vacationers, they will spend time looking for the best resorts and destinations and with infant industries limiting options, the desire to travel to Jamaica could fall.

There is no doubt that the economic issues in Jamaica must be addressed, however what we may initially think would solve the problem may send Jamaica into a further downward spiral if it affects their tourism industry too much. What must be looked at is the economy as a whole of Jamaica. For example, their trade is very unbalanced. While Jamaica imports 6.18B, they only export 1.54B, resulting in a very large deficit. There are many issues that have created the economically instability in Jamaica today. The economic problems are much more extensive than all-inclusive resorts and are rooted in many separate things. Protecting local industries displays a pretty picture temporarily, but it is not a long term solution.