Impacts of Travel and Tourism » Negative Economic Impacts

What you'll learn this session

Study time: 30 minutes

The main negative economic impacts of tourism
How leakage affects tourist destinations
The problems of seasonal employment
How tourism can lead to inflation and land price increases
The concept of opportunity costs in tourism development
Case studies of negative economic impacts in different destinations

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Introduction to Negative Economic Impacts of Tourism

While tourism brings many economic benefits to destinations, it also creates several negative economic impacts that can harm local communities and economies. Understanding these downsides is crucial for sustainable tourism planning.

Key Definitions:

Economic leakage: Money that leaves a destination's economy rather than circulating within it.
Seasonality: Fluctuations in tourist numbers throughout the year, creating periods of high and low demand.
Opportunity cost: The loss of potential gain from other alternatives when one option is chosen.
Inflation: The increase in prices of goods and services over time, reducing purchasing power.

💰 Economic Leakage

Economic leakage occurs when tourism revenue flows out of the destination rather than benefiting the local economy. This happens when tourists spend money on imported goods or when international companies take profits abroad.

📅 Seasonal Employment

Many tourism jobs are seasonal, leading to unemployment during off-peak periods. This creates financial instability for workers and can lead to migration away from tourist areas during low seasons.

Economic Leakage: A Closer Look

Economic leakage is one of the most significant negative economic impacts of tourism. It can occur in several ways:

🏫 Import Leakage

When destinations import goods and services to meet tourist demands, money flows out of the local economy. This is common with luxury items, specialised foods and technology.

🏢 Multinational Leakage

When international hotel chains and tour operators send profits back to their home countries rather than reinvesting in the destination.

🚚 Package Tourism

All-inclusive packages often mean tourists pay overseas, with only a small percentage reaching the destination country.

In some developing countries, leakage rates can be extremely high. For example, studies have shown that in some Caribbean islands, up to 80% of tourist spending leaks out of the local economy.

Case Study Focus: Leakage in The Gambia

The Gambia, a small West African country, experiences significant economic leakage. Around 85% of package holiday costs are paid to international companies, with only 15% reaching the local economy. Foreign-owned hotels import food and drinks, while most tourists arrive on international airlines. This means that despite growing tourist numbers, the economic benefits for local communities remain limited.

Seasonal Employment and Economic Instability

Tourism is often highly seasonal, creating periods of boom and bust in employment and income.

Problems of Seasonal Employment

Tourism seasonality creates several economic challenges:

Unemployment during off-peak seasons - Workers may struggle financially for several months each year
Difficulty attracting skilled workers - The temporary nature of jobs makes it hard to recruit and retain quality staff
Underutilisation of facilities - Hotels and attractions may operate at a loss during quiet periods
Strain on social welfare systems - Governments may need to support seasonal workers during off-peak times

Case Study Focus: Seasonal Employment in Cornwall, UK

Cornwall, a popular coastal destination in southwest England, faces severe seasonality issues. During summer, tourism creates thousands of jobs, but winter unemployment rates are among the highest in the UK. Many tourism workers claim benefits during winter months, while others must find alternative employment or relocate temporarily. This pattern disrupts communities and creates economic instability in the region.

Inflation and Land Price Increases

Tourism development often drives up prices in destination areas, creating economic hardship for local residents.

🏠 Property and Land Inflation

Tourism increases demand for land and property, driving up prices. Local residents may be priced out of housing markets when developers build hotels or holiday homes. In extreme cases, this leads to displacement of communities.

🍱 Consumer Price Inflation

Prices for everyday goods and services often rise in tourist areas. Shops, restaurants and services may charge higher prices to maximise profits from tourists, making life more expensive for locals who typically earn less than visitors.

Case Study Focus: Property Inflation in Venice, Italy

Venice has experienced extreme property inflation due to tourism. As properties are converted to tourist accommodation and holiday homes, local residents face housing shortages and unaffordable prices. The city's population has declined from 175,000 in the 1950s to around 50,000 today, with tourism being a major factor in this exodus. Many locals have been forced to move to mainland areas, fundamentally changing the social fabric of the historic city.

Opportunity Costs of Tourism Development

When governments and businesses invest in tourism, they forego opportunities to develop other economic sectors. These opportunity costs can be significant, especially in developing countries with limited resources.

Examples of Tourism Opportunity Costs

Land use - Land used for resorts could instead be used for agriculture, housing, or other industries
Infrastructure investment - Money spent on airports and tourist roads might otherwise fund schools or hospitals
Education and training - Resources directed to tourism training could develop skills for other industries
Water resources - Water allocated to golf courses and swimming pools might otherwise support farming

Case Study Focus: Opportunity Costs in Goa, India

In Goa, tourism development has led to significant opportunity costs. Coastal land once used for fishing and agriculture now hosts hotels and resorts. Many young people choose tourism jobs over traditional livelihoods or education that might lead to careers in technology or manufacturing. Government spending prioritises tourism infrastructure over facilities that might benefit local communities more directly. While tourism has created jobs, it has also limited the development of a more diverse economy that might be more sustainable in the long term.

Economic Dependency and Vulnerability

When destinations become overly dependent on tourism, their economies become vulnerable to external shocks.

Risks of Tourism Dependency

Tourism-dependent economies face several risks:

Natural disasters - Hurricanes, earthquakes or tsunamis can devastate tourism infrastructure
Political instability - Terrorism, protests or conflict can quickly halt tourist arrivals
Economic downturns - Global recessions reduce travel spending, affecting tourism-dependent areas
Health crises - Pandemics like COVID-19 can completely shut down tourism for extended periods
Changing travel trends - Destinations can fall out of fashion, leading to declining visitor numbers

Case Study Focus: COVID-19 Impact on Maldives

The Maldives, where tourism accounts for about 28% of GDP and 60% of foreign exchange earnings, was severely impacted by the COVID-19 pandemic. When international travel halted in 2020, the country's GDP contracted by 32%. Thousands of tourism workers lost their jobs and government revenue plummeted. This case demonstrates the extreme vulnerability that comes with economic dependency on tourism, highlighting the importance of economic diversification.

Summary: Negative Economic Impacts of Tourism

While tourism can bring significant economic benefits, its negative impacts must be carefully managed:

Economic leakage reduces the benefits that stay within local communities
Seasonal employment creates economic instability for workers
Tourism development can cause inflation and property price increases
Tourism investments have opportunity costs that may limit other development options
Over-dependency on tourism makes economies vulnerable to external shocks

Understanding these negative impacts is essential for creating more sustainable tourism development that maximises benefits while minimising costs to local communities and economies.

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