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Tourism is one of the world's largest industries, bringing significant economic benefits to destinations around the globe. When tourists visit a place, they spend money on accommodation, food, transport, souvenirs and activities - all of which can boost the local economy in various ways.
Key Definitions:
Understanding the positive economic impacts of tourism helps governments, businesses and communities make better decisions about tourism development. When managed well, tourism can be a powerful force for economic growth, especially in regions with few other industries. However, it's important to balance economic benefits with social and environmental considerations for truly sustainable tourism.
Before the COVID-19 pandemic, tourism accounted for about 10% of global GDP and 1 in 10 jobs worldwide. While the industry faced unprecedented challenges during the pandemic, it remains a vital economic sector for many countries, especially developing nations and small island states where tourism can represent over 25% of the economy.
One of the most significant positive economic impacts of tourism is job creation. Tourism is a labour-intensive industry that creates a wide range of employment opportunities across different skill levels.
Tourism creates three main types of employment opportunities:
Jobs directly created by tourist spending, such as hotel staff, tour guides, restaurant workers and attraction employees. These jobs exist specifically because tourists visit the area.
Jobs in businesses that supply the tourism industry, such as food suppliers for hotels, construction workers building tourism facilities and manufacturers of souvenirs.
Jobs created when tourism workers spend their wages in the local economy, supporting jobs in shops, services and other businesses not directly related to tourism.
When tourists spend money in a destination, that money doesn't just benefit the businesses they directly pay. It circulates through the local economy in what economists call the "multiplier effect."
Imagine a tourist spends £100 at a local hotel:
Through this chain reaction, the original £100 might generate £250 or more in total economic activity. The size of the multiplier depends on how much money stays in the local economy versus "leaking" out to pay for imported goods or services.
International tourism brings foreign currency into a country, which is particularly valuable for developing economies. This foreign exchange can be used to:
Some countries rely heavily on tourism for foreign exchange. For example, before the pandemic, tourism accounted for over 90% of the Maldives' export earnings and around 60% of foreign exchange. Other countries with high tourism dependency include Seychelles, Bahamas and Jamaica.
Tourism can significantly improve a country's balance of payments - the difference between money flowing in and out of a country. International tourist spending counts as an export (bringing money in), helping to offset imports (money going out) and creating a healthier economic balance.
Tourism often drives improvements in infrastructure that benefit both visitors and locals. These developments can include:
Better roads, airports, railways and public transport systems that improve mobility for everyone.
Improved water supply, sewage systems, electricity networks and telecommunications that raise living standards.
New parks, promenades, museums and recreational facilities that locals can enjoy year-round.
This infrastructure development is particularly valuable when it might not otherwise have been funded, especially in rural or developing areas where tourism can be a catalyst for broader economic development.
Tourism can help spread economic benefits to rural and peripheral regions that might otherwise struggle economically. Areas with few natural resources or limited agricultural potential can still thrive through tourism if they have cultural, historical, or natural attractions.
The Lake District in northern England demonstrates how tourism can support regional development. This rural area faced economic challenges as traditional industries like farming declined, but tourism has created new opportunities:
The Lake District National Park status has helped balance tourism development with environmental protection, creating a sustainable economic model.
Tourism generates tax revenue for governments at all levels, which can fund public services and further development. Sources of government revenue from tourism include:
Tourism creates opportunities for entrepreneurs to start new businesses catering to visitors. These can range from small family-run operations to larger enterprises:
Tourism often has a low barrier to entry for small businesses, allowing local people to become entrepreneurs with relatively little capital. Examples include homestays, craft production, food stalls, guided tours and transport services. These businesses can provide economic independence and help preserve traditional skills and cultures.
Existing businesses can diversify to serve tourists. For example, farmers might offer farm stays or sell produce directly to visitors, fishermen might offer fishing trips and artisans might demonstrate traditional crafts. This diversification creates additional income streams and reduces economic vulnerability.
Bali shows how tourism can transform a regional economy:
However, Bali also demonstrates the risks of over-dependence on tourism, as the COVID-19 pandemic severely impacted the island's economy when international visitors stopped arriving.
When studying the positive economic impacts of tourism, it's important to consider:
Understanding these factors helps communities and governments develop tourism strategies that maximise economic benefits while minimising potential drawbacks.