The Tourism Industry as an Alternative Approach for Income Recourses | A prospect of Saudi Arabia
Introduction:
Globally, Tourism sector has evolved rapidly and is emerging as a main sector to stabilize the economy of many countries. This industry in peak season provides the individuals with employment opportunities as well as helps the developing country to generate income. In 2014, the Tourism sector created a total of 7.5 trillion dollars along with 277 million employment opportunities all over the world. It is predicted that by the year 2025 the sector will create 11.3 trillion dollars of revenue and 357 million employment opportunities globally (Alhowaish, 2016). The word tourism refers to “a set of activities carried out by a person traveling to a place outside his/ her usual environment for at least one night, but less than a year, and whose main purpose of travel is other than the exercise of an activity remunerated from within the place visited” (UNWTO as cited in Ali, 2018, p. 417). In other words, tourism means to move around any country or city for a night or more due to comfort or leisure.
The tourism sector as compared to other sectors of the country has a positive impact on the economy. The revenue generated from the tourism sector unswervingly impacts the economic growth as well as financial development. Economic growth and financial development are interrelated. Hassan et al., (2011) states that they are associated in a way that a 10% financial development is regarded as a 2.7% economic growth in the country (as cited in Yenişehirlioğlu & Bayat, 2019). Moreover, a positive correlation between financial development and tourism revenue is also investigated in many studies. For instance, Kumar and Kumar (2013) determined that the tourism functions had an effect on financial development. Furthermore, financial catastrophes were also addressed in the tourism sector. This explain that there is an association between the two variables. The association between economic growth and financial development has been pointed out in many studies. Similarly, the importance of establishing a financial mechanism to have a rise in the economic growth of the country has also been highlighted in many researches. Moreover, studies have investigated about the relationship between the two and found that financial interference with the economy such as financial developing can ultimately generate economic advantages (Ibrahim, 2013).
Saudi Arabia is among those countries who is diversifying its economy, the Kingdom is developing the tourism industry as an alternative sector for the economy. The Kingdom is famous for pilgrimage for Muslims which includes Hajj and Umrah. The potential for Saudi Tourism is Makkah and Medinah as Muslims from all around the world visit these two places more as compared to other cities of the country. However, the country needs to develop good tourism techniques and activities to shift the economy from oil to tourism (Ali, 2018). The country has the second largest oil reserve in the world but it wants to decrease the dependency of the economy on oil reserves which the country is trying to achieve according to the Vision 2030. It is crucial for Saudi Arabia to invest in the sector to get a good financial return through the increase of tourism activities (Yenişehirlioğlu & Bayat, 2019).
Research Questions:
- How can Saudi Arabia benefit financially through the development of Tourism industry?
- What is the significant impact on financial returns due to the investment in Tourism industry of Saudi Arabia?
Research Objectives:
- To investigate the financial benefits of developing Tourism industry in case of Saudi Arabia.
- To determine the significant impact on financial returns due to the investment in Tourism industry in Saudi Arabia.
Literature Review:
Saudi Arabia’s economy is dependent on petroleum based products but the global prices of these products are decreasing with every passing day. This is impacting the total GDP of the country that needs to improved rather than decreasing. The contribution of oil based products to the Saudi economy in terms of budget income (92.5%), GDP (55%) and export revenues (97%). Since the independence, the country has been dependent on the oil industry but there has been a little rise in the prices of oil (9%). The contribution of Tourism to the Saudi economy was 65.2 billion dollars in 2016 along with producing 603,500 employment opportunities (Ali, 2018). The transition from petroleum based economy to a Tourist economy can benefit Saudi Arabia in many ways, for instance, a total of 7,613.3 billion dollars’ worth of GDP was generated globally along with 108,741,000 employment opportunities all around the world (Ali, 2018). Many countries in the Gulf region are dependent upon oil industry but they see tourism industry as a source of income creation but also a means to transition the economy towards the industry and tackle unemployment problems (Alhowaish, 2018). There many kinds of tourism industry in the world, one of the main types is the cultural tourism that is concerned with the motivation of tourists to visit locations that have many cultural sites (Sherbini, Aziz, Sidin & Yusof, 2016). Saudi Arabia is among those countries that has potential to evolve the heritage sites in the country which would attract many tourists and would prevent the country against whims of fluctuations in prices and demand of oil industry (Lakshminarayanan, 2019).
Greenwood and Jovanovic (1990) created a model for the financial sector which has the main goal to transfer funds to high-yielding investments with the help of data. This would ultimately have a positive impact on economic growth that would help to enhance the application of expensive financial mechanisms. Saint-Paul (1992) reports in his paper the responsibility of the financial sector in helping corporations in concentration by permitting the nominee to hedge by holding a varied portfolio. This can help the corporations in tourism industry to allowing the investors to fund their business which will provide it with a good financial return. The Gulf countries aren’t concerned with the decreasing prices of oil industry but they will experience a severe financial crisis in a few years. They wont feel anything now but they will face the crisis in the coming years. It is reported that Saudi Arabia will be out of cash in the next five years so to overcome the losses the Gulf countries should transition to tourism industry that can enhance their GDP (Sherbini et al., 2016). Saudi Arabia have developed different programs to achieve the goal of transitioning the economy to Tourism. So, for that the country has created Vision 2030 that entails objectives and targets to achieve by the year 2030 (Ali, 2018).
There are many studies who have highlighted the relationship between tourism and financial development incase of other countries. Song and Lin (2010) investigated the effect of financial crunch of 2007-08 on tourism among Asian countries and found out that the crunch didn’t have a positive effect on either domestic or international tourism in the continents. Moreover, the casual association between tourism, carbon emission and financial development have been investigated among Turkey and major European countries. The research concluded that there is an unintentional association between tourist and financial development (Basarir and Cakir, 2015). Financial institutions also have a role in helping the tourism corporations to attract more tourists in the country. Similarly, Ngoasong and Kimbu (2016) found that collaborative activities in casual microfinance mechanism allowed entrepreneurs to establish small scale tourism businesses. Furthermore, Kumar (2014) discovered that financial development has an impact on tourism and economic growth. He investigated the relationship between the three through information communication technology in Vietnam and found that there remains an association between tourism and output per worker directing that the two variables were jointly strengthening each other. Previous researches have investigated the connection between financial development and tourist actions, for instance Cannonier and Burke (2017) explored that connection between the two among the Caribbean countries. They found out that expenditures done by the tourists have a direct significant impact on financial development. The paper also found out that there is not a positive interconnection between the economy size and financial development. Moreover, Ohlan (2017) explored tourism led economy growth in India, he considered financial development as an additional element in the production function. The paper concluded that tourism and financial development are distinct applying a neutral impact for the economy of India.
Proposed Methodology:
The main objective of this paper is to investigate whether the diversification of economy is beneficial for the Kingdom or not in terms of income resources. Furthermore, the researcher will examine if the country can persist on relying on the Tourism industry in the long run. The study will also focus on Vision 2030 that is by the year 2030, the country’s main sector would be Tourism industry. To choose a suitable research approach the vital action is to emphasize on the research questions. Given the case, the paper will employ quantitative approach where the relationship of tourism revenue and financial development would be taken into consideration. Quantitative analysis approach is concerned with analysing the relationship through data sets and numerical values. Quantitative approach is described as “a scientific and systematic search for pertinent information on a specific topic” (Kothari, 2004 as cited in Apuke, 2017, p. 40). The approach for the paper would be an exploratory one where the researcher will explore the relationship between tourism and financial development along with conduct tests to experiment the relationship between the two.
The approach would analyze a time series data from 1970 to 2019, the relationship between the two variables would be analysed through Unit Root Rest analysis which will use Augmented Dickey Fuller to stipulate the equation appropriately. The unit root test shows stationarity among the variables. After the stationarity of the variables are revealed then a Co-integration test will be run, this test is essential to figure out whether there is a long term relationship between the two variables. This test is run to check if there occurs a stationarity linear amalgamation of non-stationary random variables (Ageli, 2013). These tests will determine whether there is a long term relationship between the two variables for Saudi Arabia and will demonstrate if tourism sector is beneficial for the country. For the paper, probability sampling would be used for the data; in this type of sampling each sample has an equal probability of being selected. Under this sampling technique simple random sampling will be applied. This type of technique is random process of choosing a sample where every factor and combination of factors in the population have an equal probability of being chosen as a segment of the sample (Showkat & Parveen, 2017). The reason for choosing this study is that results concluded would not be biased and that each data set would have an equal probability of getting selected. The test results would be authentic and valid in comparison to other techniques. Sample size would be based on the available sources along with the purpose of the research (Johnson & Christensen, 2019).
Significance
The significance of the research paper is to fill the void addressing the benefits of Tourism industry on the economy of Saudi Arabia along with the financial return due to investment in the sector. This study will be the first to address these issues while employing a time series data of approximately 30 years. This paper will also focus on the transition of Saudi Arabia’s economy from oil dependency to Tourism sector. Previous studies have not addressed the relationship between tourism sector and financial development in case of Saudi Arabia. The previous academic literature has not identified why oil dependency has put the Kingdom in grave danger. However, many studies have shown how can different developing countries enjoy economic growth through tourism sector but not in terms of income resources or financial development (for example, Ibrahim, 2013; Ali, 2018 & Alhowaish, 2016). Moreover, the paper will focus on how the role of Tourism sector can help the country to generate good financial reoccurrence through the investment of the government to help the businesses and individuals. Furthermore, studies have shown how tourism sector helps a developing country grow financially but in case of Saudi Arabia the literature is limited.
References:
Ageli, M. (2013). Tourism economics in Saudi Arabia: PP-VAR approach. Ageli, Mohammed Moosa (2013): Tourism Economics in Saudi Arabia: PP-VAR Approach. Asian Journal of Business and Management, 1(1), 21-27.
Alhowaish, A. K. (2016). Is tourism development a sustainable economic growth strategy in the long run? Evidence from GCC countries. Sustainability, 8(7), 605.
Ali, A. (2018). Travel and tourism: growth potentials and contribution to the GDP of Saudi Arabia. Problems and Perspectives in Management, 16(1), 417-427
Apuke, O. D. (2017). Quantitative research methods: A synopsis approach. Kuwait Chapter of Arabian Journal of Business and Management Review, 33(5471), 1-8.
Başarir, C., & Çakir, Y. N. (2015). Causal interactions between CO2 emissions, financial development, energy and tourism. Asian Economic and Financial Review, 5(11), 1227–1238.
Cannonier C and Burke MG (2017) Tourism and financial development in small states: evidence from Caribbean countries. Tourism Economics 23: 1–9
Greenwood, J. and Jovanovic, B. (1990), ‘Financial development, growth and distribution of income’, Journal of Political Economy, 98, pp. 1076-1107
Ibrahim, M. A. (2013). Financial development and economic growth in Saudi Arabian economy. Applied Econometrics and International Development, 13(1), 133-144.
Johnson, R. B., & Christensen, L. (2019). Educational research: Quantitative, qualitative, and mixed approaches. SAGE Publications, Incorporated.
Kumar, R. R. (2014). Exploring the role of technology, tourism and financial development: An empirical study of Vietnam. Quality and Quantity, 48(5), 2881–2898.
