Medical Tourism in Developing Countries

Plastic Surgery is Not Peanuts ● 37growing across the world. In other words, tourism has a high income elasticityof demand, as it is a service whose demand is very responsive to increasesin income. For that reason developing countries rushed onto the tourismbandwagon. Just how lucrative could this new business be? That dependedon the elasticity, so numerous studies of tourism set out to calculate incomeelasticity. 61 One study found the income elasticity of demand for foreigntravel to be 3.08, implying that when income rises, demand for foreigntravel rises faster. Another study found that, although travel demand is elastic,there is a difference between short distance and long distance travel. 62In addition to income, consumption of tourist services varies with price.Just how sensitive are tourists to changes in the price of foreign travel? Howmuch does price have to increase in order for them to forgo their trips? Theanswer to these questions lies in the price elasticity of demand: the higherthe elasticity, the more sensitive tourists are to price changes. Elasticity isdependent on a variety of factors. Among these is the nature of the good inquestion: is it a luxury or necessity? Clearly travel is not a necessity,although, in high-income economies, it undoubtedly appears more frequentlyin the consumption function. Also relevant is the relative importanceof the product in the individual’s budget: the higher the importance,the higher the price elasticity (Sinclair and Stabler have shown how the relativeand absolute importance of tourism in people’s expenditure budgets hasrisen dramatically 63 ). The price elasticity also depends on the time availablefor travelers to adjust to price changes. Houthakker and Taylor studied U.S.consumers and found that price elasticity for foreign travel was highly inelasticin the short run (0.14) and became elastic in the long run (1.77). 64Therefore, by specializing in tourism, low-income countries can, in thewords of Sinclair and Stabler, “escape from the low product quality, lowexpenditure and low income pattern which generally constrains their development.”65 They go on to suggest that growth differences between moreand less developed countries (according to which the former produce goodswith high income elasticity and the latter those with low income elasticity)often become self perpetuating, and tourism offers a way to break out ofthat cycle.Is that cycle more easily broken when the tourism in question is medicaltourism? The answer is unequivocally yes. Although it has some dependencyissue components, medical tourism enables countries to participate in theinternational economy with exports whose demand is growing even fasterthan for general tourism. Indeed, the income and price elasticity of demandfor medical tourism are not only different than for peanuts, they are alsodifferent from those of nonmedical tourism. This occurs because higherincomes translate into increased discretionary income, some of which will