Economic Impacts of Travel and Tourism
Tourism is one of the world's largest industries, contributing significantly to many countries' economies. Understanding how tourism affects local and national economies is crucial for sustainable tourism development and management.
Key Definitions:
- Economic impacts: The effects tourism has on income, employment, tax revenue and other economic aspects of a destination.
- Economic multiplier: How tourist spending circulates through an economy, creating additional rounds of spending and income.
- Leakage: Money that leaves the local economy rather than being recirculated within it.
+ Positive Economic Impacts
Tourism brings several economic benefits to destinations:
- Employment creation - direct jobs (hotels, restaurants) and indirect jobs (suppliers)
- Foreign exchange earnings - especially important for developing countries
- Government revenue through taxes and fees
- Infrastructure development that benefits locals and visitors
- Regional development in previously underdeveloped areas
- Entrepreneurial opportunities for local businesses
− Negative Economic Impacts
Tourism can also bring economic challenges:
- Economic leakage - money leaving the local economy
- Seasonal unemployment - job instability during off-seasons
- Inflation - rising prices of goods, services and property
- Opportunity costs - resources used for tourism instead of other sectors
- Over-dependence on tourism making economies vulnerable
- Low-paid, low-skilled jobs dominating the employment market
The Economic Multiplier Effect
When tourists spend money in a destination, this money doesn't just benefit the businesses they directly pay. It circulates through the local economy in several rounds of spending, creating a multiplier effect.
1️⃣ Direct Impacts
Initial tourist spending in the local economy:
- Hotel accommodation
- Restaurant meals
- Transport services
- Attraction entry fees
- Souvenir purchases
2️⃣ Indirect Impacts
Business-to-business spending:
- Hotels buying food from local farmers
- Tour companies paying for vehicle maintenance
- Restaurants purchasing local produce
- Hotels hiring local cleaning services
3️⃣ Induced Impacts
Spending by local employees:
- Hotel staff buying groceries
- Tour guides paying rent
- Restaurant workers spending on entertainment
- Local tax payments
Economic Leakage in Tourism
Economic leakage occurs when tourism revenue leaves the local economy rather than being recirculated within it. This reduces the economic benefits that host communities receive from tourism.
Types of Economic Leakage
- Import leakage: When tourists demand products that the host country cannot supply, such as specific foods or branded items
- Export leakage: When foreign investors who finance tourism development take their profits back to their home country
- Management leakage: When foreign companies manage tourism businesses and repatriate earnings
🌍 High Leakage Scenarios
Situations where more money leaves the local economy:
- All-inclusive resorts owned by international chains
- Cruise tourism where most spending happens on board
- Foreign-owned tour operators and accommodation
- Imported food and drink for tourists
- Foreign staff in management positions
🏠 Low Leakage Scenarios
Situations where more money stays in the local economy:
- Locally-owned accommodation and restaurants
- Community-based tourism initiatives
- Local guides and tour operators
- Use of local food suppliers and products
- Local crafts and souvenirs made by local artisans
Case Study Focus: Economic Impacts in The Gambia
The Gambia is a small West African country where tourism accounts for about 20% of GDP and provides significant employment. However, it faces substantial economic leakage challenges:
- Package holidays: Many tourists book through international tour operators, with only 20% of package costs reaching The Gambia
- Foreign ownership: Many hotels are foreign-owned, with profits repatriated
- Imported goods: Many food and drink items are imported to meet tourist expectations
- Positive initiatives: "Gambia is Good" project connects local farmers with hotels to reduce food imports
- Informal economy: Local "bumsters" (unofficial guides) attempt to gain economic benefits directly from tourists
Employment Impacts
Tourism is a significant employer worldwide, but the quality and stability of these jobs vary considerably.
👍 Employment Benefits
- Job creation: Tourism creates jobs across various skill levels
- Youth employment: Entry-level positions for young workers
- Female employment: Many roles accessible to women
- Entrepreneurship: Opportunities for small business creation
- Skills development: Training and career progression
👎 Employment Challenges
- Seasonality: Unstable employment during off-peak seasons
- Low wages: Many tourism jobs pay minimum wage
- Working conditions: Long hours and split shifts common
- Limited progression: Career ceiling for many workers
- Dependency: Over-reliance on tourism employment
Strategies to Maximise Economic Benefits
Destinations can implement various strategies to increase the economic benefits of tourism while reducing negative impacts:
- Linkage development: Creating connections between tourism and other economic sectors (e.g., agriculture, crafts)
- Local ownership: Encouraging local entrepreneurship and investment in tourism businesses
- Local employment policies: Requirements for businesses to hire local staff, including in management
- Skills training: Developing local capacity to work in tourism at all levels
- Extending the season: Developing year-round attractions to reduce seasonality
- Diversification: Ensuring the economy isn't over-dependent on tourism
- Fair trade tourism: Ensuring fair wages and conditions for tourism workers
Case Study Focus: Bali, Indonesia
Bali demonstrates both the economic benefits and challenges of tourism development:
- Economic contribution: Tourism contributes over 80% of Bali's economy
- Employment: Provides jobs for thousands of Balinese people
- Infrastructure: Development of roads, airports and utilities
- Challenges: High leakage through foreign-owned resorts and imported goods
- Land prices: Inflation in property values pricing out locals
- Vulnerability: Economic crises during COVID-19, terrorist attacks and volcanic eruptions showed over-dependence risks
- Initiatives: Community-based tourism in villages like Penglipuran helps keep benefits local
Exam Tips for Economic Impacts
When answering questions on economic impacts of tourism:
- Always consider both positive and negative impacts
- Use specific examples and case studies to support your points
- Explain the multiplier effect with clear examples of direct, indirect and induced impacts
- Discuss how economic leakage occurs and how it can be reduced
- Consider different stakeholder perspectives (local people, businesses, government)
- Evaluate the overall economic impact, not just list impacts
- Link economic impacts to social and environmental impacts where relevant