tourism industry economic impact

10 Economic impacts of tourism + explanations + examples

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There are many economic impacts of tourism, and it is important that we understand what they are and how we can maximise the positive economic impacts of tourism and minimise the negative economic impacts of tourism.

Many argue that the tourism industry is the largest industry in the world. While its actual value is difficult to accurately determine, the economic potential of the tourism industry is indisputable. In fact, it is because of the positive economic impacts that most destinations embark on their tourism journey.

There is, however, more than meets the eye in most cases. The positive economic impacts of tourism are often not as significant as anticipated. Furthermore, tourism activity tends to bring with it unwanted and often unexpected negative economic impacts of tourism.

In this article I will discuss the importance of understanding the economic impacts of tourism and what the economic impacts of tourism might be. A range of positive and negative impacts are discussed and case studies are provided.

At the end of the post I have provided some additional reading on the economic impacts of tourism for tourism stakeholders , students and those who are interested in learning more.

 Foreign exchange earnings

Contribution to government revenues, employment generation, contribution to local economies, development of the private sector, infrastructure cost, increase in prices, economic dependence of the local community on tourism, foreign ownership and management, economic impacts of tourism: conclusion, further reading on the economic impacts of tourism, the economic impacts of tourism: why governments invest.

Tourism brings with it huge economic potential for a destination that wishes to develop their tourism industry. Employment, currency exchange, imports and taxes are just a few of the ways that tourism can bring money into a destination.

In recent years, tourism numbers have increased globally at exponential rates, as shown in the World Tourism Organisation data below.

There are a number of reasons for this growth including improvements in technology, increases in disposable income, the growth of budget airlines and consumer desires to travel further, to new destinations and more often.

Here are a few facts about the economic importance of the tourism industry globally:

• The tourism economy represents 5 percent of world GDP
• Tourism contributes to 6-7 percent of total employment
• International tourism ranks fourth (after fuels, chemicals and automotive products) in global exports
• The tourism industry is valued at US$1trillion a year
• Tourism accounts for 30 percent of the world’s exports of commercial services
• Tourism accounts for 6 percent of total exports
• 1.4billion international tourists were recorded in 2018 (UNWTO)
• In over 150 countries, tourism is one of five top export earners
• Tourism is the main source of foreign exchange for one-third of developing countries and one-half of less economically developed countries (LEDCs)

There is a wealth of data about the economic value of tourism worldwide, with lots of handy graphs and charts in the United Nations Economic Impact Report .

In short, tourism is an example of an economic policy pursued by governments because:

•      it brings in foreign exchange
•      it generates employment
•      it creates economic activity

Building and developing a tourism industry, however, involves a lot of initial and ongoing expenditure. The airport may need expanding. The beaches need to be regularly cleaned. New roads may need to be built. All of this takes money, which is usually a financial outlay required by the Government.

For governments, decisions have to be made regarding their expenditure. They must ask questions such as:

How much money should be spent on the provision of social services such as health, education, housing?

How much should be spent on building new tourism facilities or maintaining existing ones?

If financial investment and resources are provided for tourism, the issue of opportunity costs arises.

By opportunity costs, I mean that by spending money on tourism, money will not be spent somewhere else. Think of it like this- we all have a specified amount of money and when it runs out, it runs out. If we decide to buy the new shoes instead of going out for dinner than we might look great, but have nowhere to go…!

In tourism, this means that the money and resources that are used for one purpose may not then be available to be used for other purposes. Some destinations have been known to spend more money on tourism than on providing education or healthcare for the people who live there, for example.

This can be said for other stakeholders of the tourism industry too.

There are a number of independent, franchised or multinational investors who play an important role in the industry. They may own hotels, roads or land amongst other aspects that are important players in the overall success of the tourism industry. Many businesses and individuals will take out loans to help fund their initial ventures.

So investing in tourism is big business, that much is clear. What what are the positive and negative impacts of this?

Positive economic impacts of tourism

So what are the positive economic impacts of tourism? As I explained, most destinations choose to invest their time and money into tourism because of the positive economic impacts that they hope to achieve. There are a range of possible positive economic impacts. I will explain the most common economic benefits of tourism below.

One of the biggest benefits of tourism is the ability to make money through foreign exchange earnings.

Tourism expenditures generate income to the host economy. The money that the country makes from tourism can then be reinvested in the economy. How a destination manages their finances differs around the world; some destinations may spend this money on growing their tourism industry further, some may spend this money on public services such as education or healthcare and some destinations suffer extreme corruption so nobody really knows where the money ends up!

Some currencies are worth more than others and so some countries will target tourists from particular areas. I remember when I visited Goa and somebody helped to carry my luggage at the airport. I wanted to give them a small tip and handed them some Rupees only to be told that the young man would prefer a British Pound!

Currencies that are strong are generally the most desirable currencies. This typically includes the British Pound, American, Australian and Singapore Dollar and the Euro .

Tourism is one of the top five export categories for as many as 83% of countries and is a main source of foreign exchange earnings for at least 38% of countries.

Tourism can help to raise money that it then invested elsewhere by the Government. There are two main ways that this money is accumulated.

Direct contributions are generated by taxes on incomes from tourism employment and tourism businesses and things such as departure taxes.

Taxes differ considerably between destinations. I will never forget the first time that I was asked to pay a departure tax (I had never heard of it before then), because I was on my way home from a six month backpacking trip and I was almost out of money!

Japan is known for its high departure taxes. Here is a video by a travel blogger explaining how it works.

According to the World Tourism Organisation, the direct contribution of Travel & Tourism to GDP in 2018 was $2,750.7billion (3.2% of GDP). This is forecast to rise by 3.6% to $2,849.2billion in 2019.

Indirect contributions come from goods and services supplied to tourists which are not directly related to the tourism industry.

Take food, for example. A tourist may buy food at a local supermarket. The supermarket is not directly associated with tourism, but if it wasn’t for tourism its revenues wouldn’t be as high because the tourists would not shop there.

There is also the income that is generated through induced contributions . This accounts for money spent by the people who are employed in the tourism industry. This might include costs for housing, food, clothing and leisure Activities amongst others. This will all contribute to an increase in economic activity in the area where tourism is being developed.

The rapid expansion of international tourism has led to significant employment creation. From hotel managers to theme park operatives to cleaners, tourism creates many employment opportunities. Tourism supports some 7% of the world’s workers.

There are two types of employment in the tourism industry: direct and indirect.

Direct employment includes jobs that are immediately associated with the tourism industry. This might include hotel staff, restaurant staff or taxi drivers, to name a few.

Indirect employment includes jobs which are not technically based in the tourism industry, but are related to the tourism industry. Take a fisherman, for example. He does not have any contact of dealings with tourists. BUT he does sell his fish to the hotel which serves tourists. So he is indirectly employed by the tourism industry, because without the tourists he would not be supplying the fish to the hotel.

It is because of these indirect relationships, that it is very difficult to accurately measure the economic value of tourism.

It is also difficult to say how many people are employed, directly and indirectly, within the tourism industry.

Furthermore, many informal employments may not be officially accounted for. Think tut tut driver in Cambodia or street seller in The Gambia – these people are not likely to be registered by the state and therefore their earnings are not declared.

It is for this reason that some suggest that the actual economic benefits of tourism may be as high as double that of the recorded figures!

All of the money raised, whether through formal or informal means, has the potential to contribute to the local economy.

If sustainable tourism is demonstrated, money will be directed to areas that will benefit the local community most.

There may be pro-poor tourism initiatives (tourism which is intended to help the poor) or volunteer tourism projects.

The government may reinvest money towards public services and money earned by tourism employees will be spent in the local community. This is known as the multiplier effect.

The multiplier effect relates to spending in one place creating economic benefits elsewhere. Tourism can do wonders for a destination in areas that may seem to be completely unrelated to tourism, but which are actually connected somewhere in the economic system.

Let me give you an example.

A tourist buys an omelet and a glass of orange juice for their breakfast in the restaurant of their hotel. This simple transaction actually has a significant multiplier effect. Below I have listed just a few of the effects of the tourist buying this breakfast.

The waiter is paid a salary- he spends his salary on schooling for his kids- the school has more money to spend on equipment- the standard of education at the school increases- the kids graduate with better qualifications- as adults, they secure better paying jobs- they can then spend more money in the local community…

The restaurant purchases eggs from a local farmer- the farmer uses that money to buy some more chickens- the chicken breeder uses that money to improve the standards of their cages, meaning that the chickens are healthier, live longer and lay more eggs- they can now sell the chickens for a higher price- the increased money made means that they can hire an extra employee- the employee spends his income in the local community…

The restaurant purchase the oranges from a local supplier- the supplier uses this money to pay the lorry driver who transports the oranges- the lorry driver pays road tax- the Government uses said road tax income to fix pot holes in the road- the improved roads make journeys quicker for the local community…

So as you can see, that breakfast that the tourist probably gave not another thought to after taking his last mouthful of egg, actually had the potential to have a significant economic impact on the local community!

The private sector has continuously developed within the tourism industry and owning a business within the private sector can be extremely profitable; making this a positive economic impact of tourism.

Whilst many businesses that you will come across are multinational, internationally-owned organisations (which contribute towards economic leakage ).

Many are also owned by the local community. This is the case even more so in recent years due to the rise in the popularity of the sharing economy and the likes of Airbnb and Uber, which encourage the growth of businesses within the local community.

Every destination is different with regards to how they manage the development of the private sector in tourism.

Some destinations do not allow multinational organisations for fear that they will steal business and thus profits away from local people. I have seen this myself in Italy when I was in search of a Starbucks mug for my collection , only to find that Italy has not allowed the company to open up any shops in their country because they are very proud of their individually-owned coffee shops.

Negative economic impacts of tourism

Unfortunately, the tourism industry doesn’t always smell of roses and there are also several negative economic impacts of tourism.

There are many hidden costs to tourism, which can have unfavourable economic effects on the host community.

Whilst such negative impacts are well documented in the tourism literature, many tourists are unaware of the negative effects that their actions may cause. Likewise, many destinations who are inexperienced or uneducated in tourism and economics may not be aware of the problems that can occur if tourism is not management properly.

Below, I will outline the most prominent negative economic impacts of tourism.

Economic leakage in tourism is one of the major negative economic impacts of tourism. This is when money spent does not remain in the country but ends up elsewhere; therefore limiting the economic benefits of tourism to the host destination.

The biggest culprits of economic leakage are multinational and internationally-owned corporations, all-inclusive holidays and enclave tourism.

I have written a detailed post on the concept of economic leakage in tourism, you can take a look here- Economic leakage in tourism explained .

Another one of the negative economic impacts of tourism is the cost of infrastructure. Tourism development can cost the local government and local taxpayers a great deal of money.

Tourism may require the government to improve the airport, roads and other infrastructure, which are costly. The development of the third runway at London Heathrow, for example, is estimated to cost £18.6billion!

Money spent in these areas may reduce government money needed in other critical areas such as education and health, as I outlined previously in my discussion on opportunity costs.

One of the most obvious economic impacts of tourism is that the very presence of tourism increases prices in the local area.

Have you ever tried to buy a can of Coke in the supermarket in your hotel? Or the bar on the beachfront? Walk five minutes down the road and try buying that same can in a local shop- I promise you, in the majority of cases you will see a BIG difference In cost! (For more travel hacks like this subscribe to my newsletter – I send out lots of tips, tricks and coupons!)

Increasing demand for basic services and goods from tourists will often cause price hikes that negatively impact local residents whose income does not increase proportionately.

Tourism development and the related rise in real estate demand may dramatically increase building costs and land values. This often means that local people will be forced to move away from the area that tourism is located, known as gentrification.

Taking measures to ensure that tourism is managed sustainably can help to mitigate this negative economic impact of tourism. Techniques such as employing only local people, limiting the number of all-inclusive hotels and encouraging the purchasing of local products and services can all help.

Another one of the major economic impacts of tourism is dependency. Many countries run the risk of becoming too dependant on tourism. The country sees $ signs and places all of its efforts in tourism. Whilst this can work out well, it is also risky business!

If for some reason tourism begins to lack in a destination, then it is important that the destination has alternative methods of making money. If they don’t, then they run the risk of being in severe financial difficulty if there is a decline in their tourism industry.

In The Gambia, for instance, 30% of the workforce depends directly or indirectly on tourism. In small island developing states, percentages can range from 83% in the Maldives to 21% in the Seychelles and 34% in Jamaica.

There are a number of reasons that tourism could decline in a destination.

The Gambia has experienced this just recently when they had a double hit on their tourism industry. The first hit was due to political instability in the country, which has put many tourists off visiting, and the second was when airline Monarch went bust, as they had a large market share in flights to The Gambia.

Other issues that could result in a decline in tourism includes economic recession, natural disasters and changing tourism patterns. Over-reliance on tourism carries risks to tourism-dependent economies, which can have devastating consequences.

The last of the negative economic impacts of tourism that I will discuss is that of foreign ownership and management.

As enterprise in the developed world becomes increasingly expensive, many businesses choose to go abroad. Whilst this may save the business money, it is usually not so beneficial for the economy of the host destination.

Foreign companies often bring with them their own staff, thus limiting the economic impact of increased employment. They will usually also export a large proportion of their income to the country where they are based. You can read more on this in my post on economic leakage in tourism .

As I have demonstrated in this post, tourism is a significant economic driver the world over. However, not all economic impacts of tourism are positive. In order to ensure that the economic impacts of tourism are maximised, careful management of the tourism industry is required.

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Reimagining the $9 trillion tourism economy—what will it take?

Tourism made up 10 percent of global GDP in 2019 and was worth almost $9 trillion, 1 See “Economic impact reports,” World Travel & Tourism Council (WTTC), wttc.org. making the sector nearly three times larger than agriculture. However, the tourism value chain of suppliers and intermediaries has always been fragmented, with limited coordination among the small and medium-size enterprises (SMEs) that make up a large portion of the sector. Governments have generally played a limited role in the industry, with partial oversight and light-touch management.

COVID-19 has caused an unprecedented crisis for the tourism industry. International tourist arrivals are projected to plunge by 60 to 80 percent in 2020, and tourism spending is not likely to return to precrisis levels until 2024. This puts as many as 120 million jobs at risk. 2 “International tourist numbers could fall 60-80% in 2020, UNWTO reports,” World Tourism Organization, May 7, 2020, unwto.org.

Reopening tourism-related businesses and managing their recovery in a way that is safe, attractive for tourists, and economically viable will require coordination at a level not seen before. The public sector may be best placed to oversee this process in the context of the fragmented SME ecosystem, large state-owned enterprises controlling entry points, and the increasing impact of health-related agencies. As borders start reopening and interest in leisure rebounds in some regions , governments could take the opportunity to rethink their role within tourism, thereby potentially both assisting in the sector’s recovery and strengthening it in the long term.

In this article, we suggest four ways in which governments can reimagine their role in the tourism sector in the context of COVID-19.

1. Streamlining public–private interfaces through a tourism nerve center

Before COVID-19, most tourism ministries and authorities focused on destination marketing, industry promotions, and research. Many are now dealing with a raft of new regulations, stimulus programs, and protocols. They are also dealing with uncertainty around demand forecasting, and the decisions they make around which assets—such as airports—to reopen will have a major impact on the safety of tourists and sector employees.

Coordination between the public and private sectors in tourism was already complex prior to COVID-19. In the United Kingdom, for example, tourism falls within the remit of two departments—the Department for Business, Energy, and Industrial Strategy (BEIS) and the Department for Digital, Culture, Media & Sport (DCMS)—which interact with other government agencies and the private sector at several points. Complex coordination structures often make clarity and consistency difficult. These issues are exacerbated by the degree of coordination that will be required by the tourism sector in the aftermath of the crisis, both across government agencies (for example, between the ministries responsible for transport, tourism, and health), and between the government and private-sector players (such as for implementing protocols, syncing financial aid, and reopening assets).

Concentrating crucial leadership into a central nerve center  is a crisis management response many organizations have deployed in similar situations. Tourism nerve centers, which bring together public, private, and semi-private players into project teams to address five themes, could provide an active collaboration framework that is particularly suited to the diverse stakeholders within the tourism sector (Exhibit 1).

We analyzed stimulus packages across 24 economies, 3 Australia, Bahrain, Belgium, Canada, Egypt, Finland, France, Germany, Hong Kong, Indonesia, Israel, Italy, Kenya, Malaysia, New Zealand, Peru, Philippines, Singapore, South Africa, South Korea, Spain, Switzerland, Thailand, and the United Kingdom. which totaled nearly $100 billion in funds dedicated directly to the tourism sector, and close to $300 billion including cross-sector packages with a heavy tourism footprint. This stimulus was generally provided by multiple entities and government departments, and few countries had a single integrated view on beneficiaries and losers. We conducted surveys on how effective the public-sector response has been and found that two-thirds of tourism players were either unaware of the measures taken by government or felt they did not have sufficient impact. Given uncertainty about the timing and speed of the tourism recovery, obtaining quick feedback and redeploying funds will be critical to ensuring that stimulus packages have maximum impact.

2. Experimenting with new financing mechanisms

Most of the $100 billion stimulus that we analyzed was structured as grants, debt relief, and aid to SMEs and airlines. New Zealand has offered an NZ $15,000 (US $10,000) grant per SME to cover wages, for example, while Singapore has instituted an 8 percent cash grant on the gross monthly wages of local employees. Japan has waived the debt of small companies where income dropped more than 20 percent. In Germany, companies can use state-sponsored work-sharing schemes for up to six months, and the government provides an income replacement rate of 60 percent.

Our forecasts indicate that it will take four to seven years for tourism demand to return to 2019 levels, which means that overcapacity will be the new normal in the medium term. This prolonged period of low demand means that the way tourism is financed needs to change. The aforementioned types of policies are expensive and will be difficult for governments to sustain over multiple years. They also might not go far enough. A recent Organisation for Economic Co-operation and Development (OECD) survey of SMEs in the tourism sector suggested more than half would not survive the next few months, and the failure of businesses on anything like this scale would put the recovery far behind even the most conservative forecasts. 4 See Tourism policy responses to the coronavirus (COVID-19), OECD, June 2020, oecd.org. Governments and the private sector should be investigating new, innovative financing measures.

Revenue-pooling structures for hotels

One option would be the creation of revenue-pooling structures, which could help asset owners and operators, especially SMEs, to manage variable costs and losses moving forward. Hotels competing for the same segment in the same district, such as a beach strip, could have an incentive to pool revenues and losses while operating at reduced capacity. Instead of having all hotels operating at 20 to 40 percent occupancy, a subset of hotels could operate at a higher occupancy rate and share the revenue with the remainder. This would allow hotels to optimize variable costs and reduce the need for government stimulus. Non-operating hotels could channel stimulus funds into refurbishments or other investment, which would boost the destination’s attractiveness. Governments will need to be the intermediary between businesses through auditing or escrow accounts in this model.

Joint equity funds for small and medium-size enterprises

Government-backed equity funds could also be used to deploy private capital to help ensure that tourism-related SMEs survive the crisis (Exhibit 2). This principle underpins the European Commission’s temporary framework for recapitalization of state-aided enterprises, which provided an estimated €1.9 trillion in aid to the EU economy between March and May 2020. 5 See “State aid: Commission expands temporary framework to recapitalisation and subordinated debt measures to further support the economy in the context of the coronavirus outbreak,” European Commission, May 8, 2020, ec.europa.eu. Applying such a mechanism to SMEs would require creating an appropriate equity-holding structure, or securitizing equity stakes in multiple SMEs at once, reducing the overall risk profile for the investor. In addition, developing a standardized valuation methodology would avoid lengthy due diligence processes on each asset. Governments that do not have the resources to co-invest could limit their role to setting up those structures and opening them to potential private investors.

3. Ensuring transparent, consistent communication on protocols

The return of tourism demand requires that travelers and tourism-sector employees feel—and are—safe. Although international organizations such as the International Air Transport Association (IATA), and the World Travel & Tourism Council (WTTC) have developed a set of guidelines to serve as a baseline, local regulators are layering additional measures on top. This leads to low levels of harmonization regarding regulations imposed by local governments.

Our surveys of traveler confidence in the United States  suggests anxiety remains high, and authorities and destination managers must work to ensure travelers know about, and feel reassured by, protocols put in place for their protection. Our latest survey of traveler sentiment in China  suggests a significant gap between how confident travelers would like to feel and how confident they actually feel; actual confidence in safety is much lower than the expected level asked a month before.

One reason for this low level of confidence is confusion over the safety measures that are currently in place. Communication is therefore key to bolstering demand. Experience in Europe indicates that prompt, transparent, consistent communications from public agencies have had a similar impact on traveler demand as CEO announcements have on stock prices. Clear, credible announcements regarding the removal of travel restrictions have already led to increased air-travel searches and bookings. In the week that governments announced the removal of travel bans to a number of European summer destinations, for example, outbound air travel web search volumes recently exceeded precrisis levels by more than 20 percent in some countries.

The case of Greece helps illustrate the importance of clear and consistent communication. Greece was one of the first EU countries to announce the date of, and conditions and protocols for, border reopening. Since that announcement, Greece’s disease incidence has remained steady and there have been no changes to the announced protocols. The result: our joint research with trivago shows that Greece is now among the top five summer destinations for German travelers for the first time. In July and August, Greece will reach inbound airline ticketing levels that are approximately 50 percent of that achieved in the same period last year. This exceeds the rate in most other European summer destinations, including Croatia (35 percent), Portugal (around 30 percent), and Spain (around 40 percent). 6 Based on IATA Air Travel Pulse by McKinsey. In contrast, some destinations that have had inconsistent communications around the time frame of reopening have shown net cancellations of flights for June and July. Even for the high seasons toward the end of the year, inbound air travel ticketing barely reaches 30 percent of 2019 volumes.

Digital solutions can be an effective tool to bridge communication and to create consistency on protocols between governments and the private sector. In China, the health QR code system, which reflects past travel history and contact with infected people, is being widely used during the reopening stage. Travelers have to show their green, government-issued QR code before entering airports, hotels, and attractions. The code is also required for preflight check-in and, at certain destination airports, after landing.

4. Enabling a digital and analytics transformation within the tourism sector

Data sources and forecasts have shifted, and proliferated, in the crisis. Last year’s demand prediction models are no longer relevant, leaving many destinations struggling to understand how demand will evolve, and therefore how to manage supply. Uncertainty over the speed and shape of the recovery means that segmentation and marketing budgets, historically reassessed every few years, now need to be updated every few months. The tourism sector needs to undergo an analytics transformation to enable the coordination of marketing budgets, sector promotions, and calendars of events, and to ensure that products are marketed to the right population segment at the right time.

Governments have an opportunity to reimagine their roles in providing data infrastructure and capabilities to the tourism sector, and to investigate new and innovative operating models. This was already underway in some destinations before COVID-19. Singapore, for example, made heavy investments in its data and analytics stack over the past decade through the Singapore Tourism Analytics Network (STAN), which provided tourism players with visitor arrival statistics, passenger profiling, spending data, revenue data, and extensive customer-experience surveys. During the COVID-19 pandemic, real-time data on leading travel indicators and “nowcasts” (forecasts for the coming weeks and months) could be invaluable to inform the decisions of both public-sector and private-sector entities.

This analytics transformation will also help to address the digital gap that was evident in tourism even before the crisis. Digital services are vital for travelers: in 2019, more than 40 percent of US travelers used mobile devices to book their trips. 7 Global Digital Traveler Research 2019, Travelport, marketing.cloud.travelport.com; “Mobile travel trends 2019 in the words of industry experts,” blog entry by David MacHale, December 11, 2018, blog.digital.travelport.com. In Europe and the United States, as many as 60 percent of travel bookings are digital, and online travel agents can have a market share as high as 50 percent, particularly for smaller independent hotels. 8 Sean O’Neill, “Coronavirus upheaval prompts independent hotels to look at management company startups,” Skift, May 11, 2020, skift.com. COVID-19 is likely to accelerate the shift to digital as travelers look for flexibility and booking lead times shorten: more than 90 percent of recent trips in China  were booked within seven days of the trip itself. Many tourism businesses have struggled to keep pace with changing consumer preferences around digital. In particular, many tourism SMEs have not been fully able to integrate new digital capabilities in the way that larger businesses have, with barriers including language issues, and low levels of digital fluency. The commission rates on existing platforms, which range from 10 percent for larger hotel brands to 25 percent for independent hotels, also make it difficult for SMEs to compete in the digital space.

Governments are well-positioned to overcome the digital gap within the sector and to level the playing field for SMEs. The Tourism Exchange Australia (TXA) platform, which was created by the Australian government, is an example of enabling at scale. It acts as a matchmaker, connecting suppliers with distributors and intermediaries to create packages attractive to a specific segment of tourists, then uses tourist engagement to provide further analytical insights to travel intermediaries (Exhibit 3). This mechanism allows online travel agents to diversify their offerings by providing more experiences away from the beaten track, which both adds to Australia’s destination attractiveness, and gives small suppliers better access to customers.

Governments that seize the opportunity to reimagine tourism operations and oversight will be well positioned to steer their national tourism industries safely into—and set them up to thrive within—the next normal.

Download the article in Arabic  (513KB)

Margaux Constantin is an associate partner in McKinsey’s Dubai office, Steve Saxon is a partner in the Shanghai office, and Jackey Yu  is an associate partner in the Hong Kong office.

The authors wish to thank Hugo Espirito Santo, Urs Binggeli, Jonathan Steinbach, Yassir Zouaoui, Rebecca Stone, and Ninan Chacko for their contributions to this article.

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Travel Will Inject a Record $11 Trillion Into the Global Economy This Year: Report

Tourism is expected to become a $16 trillion industry by 2034, the world travel & tourism council says., rachel cormack.

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All your jet-setting and hotel-hopping is having a significant effect on the global economy.

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The 14-figure sums can be broken down into three types of travel transactions, Bloomberg notes. Direct travel spending includes things like hotels, tours, and transportation, as well as public investment in these types of services. Indirect travel spending covers the expenses of those businesses, such as sheets and towels or the ingredients for the breakfast buffet. Finally, induced spending accounts for the trickle-down effects of hospitality employees.

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What is Travel and Tourism?

Measures how much tourists spend and the prices they pay for lodging, airfare, souvenirs, and other travel-related items. These statistics also provide a snapshot of employment in the travel and tourism industries.

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Economic Impact Research

• In 2023, the Travel & Tourism sector contributed 9.1% to the global GDP; an increase of 23.2% from 2022 and only 4.1% below the 2019 level.
• In 2023, there were 27 million new jobs, representing a 9.1% increase compared to 2022, and only 1.4% below the 2019 level.
• Domestic visitor spending rose by 18.1% in 2023, surpassing the 2019 level.
• International visitor spending registered a 33.1% jump in 2023 but remained 14.4% below the 2019 total.

Click here for links to the different economy/country and regional reports

Why conduct research?

From the outset, our Members realised that hard economic facts were needed to help governments and policymakers truly understand the potential of Travel & Tourism. Measuring the size and growth of Travel & Tourism and its contribution to society, therefore, plays a vital part in underpinning WTTC’s work.

What research does WTTC carry out?

Each year, WTTC and Oxford Economics produce reports covering the economic contribution of our sector in 185 countries, for 26 economic and geographic regions, and for more than 70 cities. We also benchmark Travel & Tourism against other economic sectors and analyse the impact of government policies affecting the sector such as jobs and visa facilitation.

Visit our Research Hub via the button below to find all our Economic Impact Reports, as well as other reports on Travel and Tourism. 

The Economic Impact of Tourism: What You Need to Know

How Much Does Tourism Contribute to the Global Economy?

The relationship between tourism and economic growth, how does tourism affect developing countries, what are the four economic impacts of tourism, leveraging the power of tourism for online travel agencies.

Tourism encompasses much more than just leisurely vacations and exploring far-off destinations. In fact, this vast industry plays a significant role in keeping the world economy thriving. 

When the world shut down due to the COVID-19 pandemic, we saw its devastating effects on the tourism industry. Airports were shut down, hotels were left empty, and online travel agencies experienced a complete halt in revenue. 

Like the rest of the world, the travel and tourism industry was in a state of limbo.

As we look to the future, it’s important to remember the power of tourism and its impacts on the global economy. In 2023, the tourism sector’s global market size is anticipated to exceed 2019 , with a market size estimated at $2.29tn.

The impact of tourism on the economy extends beyond generating income and employment. It acts as a growth engine, stimulating investment in infrastructure, promoting sustainable development, and fostering the conservation of cultural and natural heritage . This multifaceted influence demonstrates how tourism is fundamental to global economic development.

In this blog post, we’ll explore how tourism contributes to the economy and why it should be a priority for everyone.

Travel isn’t just good for the soul; it’s good for the economy. Let’s break down the numbers.

Contribution to Global GDP

Exploring the impact of tourism on the economy requires a detailed look at its contribution to the global GDP. This contribution is not only a direct reflection of tourist spending but also an indicator of how tourism stimulates the economy through job creation , infrastructure investment, and a boost to related industries.

In 2019, the travel and tourism industry accounted for 10.4% of global GDP – that’s $10 trillion! In 2022, the industry reached 7.6% of GDP .

Not only does this include the direct spending by tourists in hotels, restaurants, and attractions, but it also includes indirect spending in industries such as transportation, shopping, and entertainment.

This data indicates the industry’s resilience and potential to bounce back. The travel and tourism industry will continue to contribute to the global economy.

Job Creation

In 2022, the tourism industry supported over 22 million jobs. When people think of tourism-related jobs, they usually think of travel agents, hotel staff, and workers at tourist attractions. However, there are also millions of people around the world who work in tourism and related industries.

The Interconnectedness of the Tourism Industry with Other Industries

The tourism industry is intricately connected to a wide array of other industries. 

It’s challenging to measure tourism’s exact contributions due to the level of fragmentation within the industry. However, its actual values are expected to be far greater than reported. This is because travelers also contribute to non-travel sectors such as retail, recreation, and entertainment.

Tourism is a significant driver of economic prosperity as it contributes to job creation and spurs innovation and investments.

Given the significant impact of tourism on the global economy, it’s important to examine the relationship between tourism and economic growth.

Tourism as a Driver for Economic Growth 

Increased demand stimulates the economy by creating jobs in different sectors, from hospitality to transport which brings in more revenue and opportunities for growth within the community.

Zurab Pololikashvili, the secretary general of UNWTO , said, “ Global tourism is on track to return to pre-pandemic levels by the end of year. By investing in people and projects that make a difference, we can deliver on the sector’s potential to drive growth and opportunity for all.”

In tourism, there are jobs that are directly related to tourism and tourism spending; for example, when a tourist travels to Barcelona, they will spend money on hotels, tour guides, and activities.

But there are also those indirectly related to tourism ; for instance, when they go to a restaurant in the city or shop at a local store, they contribute to the local economy.

The Multiplier Effect of Tourism

The interconnectedness of tourism also leads to the multiplier effect, which amplifies the economic impact of tourism on a region or country. 

The Journal of Risk and Financial Management conducted a study that found “The impact of tourism activity on economic development is determined by the current multiplier mechanism created by the existing revenue-expenditure flow in the sector due to international tourism movements.” 

Tourism also has a multiplier effect on other industries . For example, suppose a tourist spends money on a hotel room. In that case, the hotel purchases goods and services from other businesses, such as food, linen, and toiletries. These businesses, in turn, purchase goods and services from other companies, and the cycle continues.

This means that the economic impact of tourism is not limited to the tourism industry but spreads across various sectors of the economy. The expenditure of international tourists on tourism can generate income that may result in new revenue streams, investments, savings, and consumption.

The Role of Online Travel Agencies in Promoting Economic Growth 

Online travel agencies play an important role in promoting economic growth and development. They help connect travelers with different hotels, flights, and activities. 

However, they don’t just help them find the right place to stay or flight to book. OTAs also provide travelers with inspiration, knowledge, and insights to help them make the best trip decisions.

Their promotional activities can fastly increase the economic growth of the regions they promote. For instance, OTAs can promote different destinations and activities they may not know. Whether it’s a destination in the countryside or a less-traveled area such as many developing countries.

In addition to traditional methods of economic growth in tourism, the importance of exploring sustainable approaches, cannot be overstated. Gain a deeper understanding of this forward-thinking practice, which includes diverse examples and effective implementation strategies, in our in-depth exploration about what is regenerative tourism .

When tourists spend more money when they travel, and the money they spend is reinvested into the local economy, tourism directly impacts the economy.

Tourism increases economic activity. The influx of tourists drives up local businesses’ demand for services and products, creating jobs, increasing revenue, and reducing poverty.

Direct benefits include those created by tourism-related activities such as accommodation, transport, and attractions. Indirect benefits come from supporting activities to tourism, such as construction and retailing. 

Tourism also benefits developing countries in other ways, such as improving the perception of their country on the global stage and increasing foreign investment.

Challenges and Opportunities for Online Travel Agencies in Emerging Markets

In John Lea’s book, Tourism and Developments in the Third World , he discusses how small island communities depend more on foreign tourism than bigger countries. Island tourism can be a lifeline for many people in these places, particularly regarding job creation and economic opportunities. 

However, challenges like limited infrastructure, political instability, and lack of local tourism products still exist. 

The 5 A’s of tourism – attractions, activities, accessibility, accommodation, and amenities, play a significant role in determining the success of tourism in any destination. By improving these areas, emerging markets can better leverage and capitalize on their tourism potential.

Online travel agencies can play a crucial role in driving economic growth in these markets:

• They have the potential to access untapped opportunities that are often overlooked.
• They can promote lesser-known tourist hotspots with potential. 
• They can partner with governments and local tourism stakeholders in emerging markets.
• They are more agile and better equipped to respond quickly to changing market needs.
• They can enable local players to expand their reach, open up new markets, and create economic value. 
• They can provide a platform for local businesses to showcase their products.

Case Studies of Successful Tourism Development in Developing Countries

South Africa

South Africa is an excellent example of a developing country that has successfully utilized tourism as an integral part of its economic growth plan. 

The tourism industry accounts for 3.7% of South Africa’s GDP. This is higher than the contribution of agriculture, utilities, and construction.

The country’s abundance of natural and cultural resources makes it a popular tourist destination for people worldwide. With its stunning beaches, mountains, and diverse wildlife reserves, it has become one of Africa’s most popular tourism destinations.

South African Tourism (SAT) and the Department of Tourism have aligned their strategic plan for 2020-2025 to encourage the growth and development of tourism in South Africa. This includes providing efficient marketing for tourist destinations and improving cooperation between different levels of government in managing tourism.

The accommodation industry’s total income in September 2022 increased by 79.3% compared to September 2021. Among all accommodation options, hotels experienced the most significant increase in total income , with a 118.6% rise.

Egypt is another great example of a developing country that has seen success in the tourism industry. Egypt’s tourism earnings are expected to reach $13.6 billion in 2023.

The Minister of Tourism, Ahmed Issa, aims to achieve an annual growth rate of 25% to 30% . This is part of Egypt’s plan to attract 30 million tourists by 2028. They aim to invest $30bn (30,000 rooms) to meet anticipated demand. Additionally, they plan to invest investment in customer experiences.

The focus of the Egyptian government is to offer improved tourism experiences . This includes promoting cultural heritage sites, nature-based tourism activities, and other diverse tourist attractions unique to Egypt.

India is another developing country rapidly gaining traction in the tourism industry. India’s total contribution to GDP in Travel & Tourism r anked sixth in 2022. Tourism jobs are expected to increase by 8.3% , reaching nearly 35 million employment opportunities.

The Ministry of Tourism launched the Swadesh Darshan scheme to promote theme-based tourism in India and harness its potential for development.

Their goals are to improve the local economies, generate job opportunities, promote industry skill development, increase private sector investment, and conserve local cultural and natural resources.

1. Infrastructure Development

Tourism provides the government and private sector with the revenue to invest in the infrastructure required for tourism activities . This includes the construction and renovation of roads, highways, and airports. For example, increased tourism can lead to improved access and transportation networks, which benefit the local economy and travelers alike.

2. Cultural Preservation 

Tourism also plays a role in preserving historical sites and cultural traditions. As many visitors worldwide flock to a destination to learn about its history and culture, tourism can help generate sufficient funds for cultural conservation efforts.

3. Natural Resources

Tourism can provide incentives for protecting and preserving natural resources and ecosystems. By introducing sustainable tourism practices, areas with important biodiversity can be better safeguarded against destruction while delivering economic benefits to the local community.

4. Local Entrepreneurship and Small Business Growth

The influx of visitors to a destination can also stimulate the growth of small, locally-owned businesses. Restaurants and retail stores often experience increased profits. At the same time, entrepreneurs can take advantage of new opportunities in the tourism industry.

Online travel agencies play a vital role in the tourism industry, providing the convenience of booking services with just a few clicks. With the right strategies, OTAs can leverage the power of tourism to maximize its economic impact. 

Strategies for Maximizing the Positive Economic Impact of Tourism:

There are three strategies for maximizing the positive impact of tourism: understanding the local economy, promoting responsible and sustainable tourism practices, and adapting to evolving trends in the tourism industry.

1. Understand the Local Economy. 

To better serve your clients, it’s crucial to comprehend how tourism can economically benefit various regions based on the type of travel agency you operate . This knowledge can then aid you in aligning your clients’ interests with your business goals.

For example, tourists visiting a region may stimulate local businesses and introduce new products that would otherwise not be available. This can have a ripple effect on the local economy.

2. Promoting Responsible and Sustainable Tourism Practices

The way online travel agencies advertise and promote their services based on responsible and sustainable tourism practices has changed over the years. 

OTAs can support this by promoting sustainable and ethical travel opportunities that empower local communities.

For example, an OTA may promote eco-friendly accommodations, sustainable tour operators, and local community initiatives.

3. Adapting to Evolving Trends in the Tourism Industry

Tourists often seek out new experiences, and OTAs can provide information about activities that match their interests.

For example, experiential travel, which focuses on activities such as cultural experiences and outdoor adventures, has been gaining traction in recent years.

The economic impact of tourism is enormous, and the industry has the potential to be a significant driver of global economic growth. 

OTA’s have an important role to play in the continued success of this sector, and understanding the economic impact that tourism has on their business can help them make smart decisions and continue to grow their business. Tourism affects not only these agencies but also hotels, airlines, and other related businesses. Additionally, the industry provides many opportunities for growth and development in the tourism sector. As governments worldwide strive to create more sustainable and environmentally conscious development models, the tourism industry can provide a key source of income and job opportunities.

For insights into successful tourism marketing strategies, offering valuable perspectives and case studies and, as we explore the significant economic impact of tourism, it’s also important to understand how effective campaigns in tourism can amplify this impact.

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Marc Truyols has a degree in Tourism from the University of the Balearic Islands. Marc has extensive experience in the leisure, travel and tourism industry. His skills in negotiation, hotel management, customer service, sales and hotel management make him a strong business development professional in the travel industry.

Mize is the leading hotel booking optimization solution in the world. With over 170 partners using our fintech products, Mize creates new extra profit for the hotel booking industry using its fully automated proprietary technology and has generated hundreds of millions of dollars in revenue across its suite of products for its partners. Mize was founded in 2016 with its headquarters in Tel Aviv and offices worldwide.

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Tourism’s Importance for Growth Highlighted in World Economic Outlook Report

• All Regions
• 10 Nov 2023

Tourism has again been identified as a key driver of economic recovery and growth in a new report by the International Monetary Fund (IMF). With UNWTO data pointing to a return to 95% of pre-pandemic tourist numbers by the end of the year in the best case scenario, the IMF report outlines the positive impact the sector’s rapid recovery will have on certain economies worldwide.

According to the World Economic Outlook (WEO) Report , the global economy will grow an estimated 3.0% in 2023 and 2.9% in 2024. While this is higher than previous forecasts, it is nevertheless below the 3.5% rate of growth recorded in 2022, pointing to the continued impacts of the pandemic and Russia's invasion of Ukraine, and from the cost-of-living crisis.

Tourism key sector for growth

The WEO report analyses economic growth in every global region, connecting performance with key sectors, including tourism. Notably, those economies with "large travel and tourism sectors" show strong economic resilience and robust levels of economic activity. More specifically, countries where tourism represents a high percentage of GDP   have recorded faster recovery from the impacts of the pandemic in comparison to economies where tourism is not a significant sector.

As the report Foreword notes: "Strong demand for services has supported service-oriented economies—including important tourism destinations such as France and Spain".

Looking Ahead

The latest outlook from the IMF comes on the back of UNWTO's most recent analysis of the prospects for tourism, at the global and regional levels. Pending the release of the November 2023 World Tourism Barometer , international tourism is on track to reach 80% to 95% of pre-pandemic levels in 2023. Prospects for September-December 2023 point to continued recovery, driven by the still pent-up demand and increased air connectivity particularly in Asia and the Pacific where recovery is still subdued.

Related links

• Download the News Release on PDF
• UNWTO World Tourism Barometer
• IMF World Economic Outlook

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Travel and tourism industry set to surpass $11.1 trillion in global economic contribution in 2024: Report

The travel and tourism industry is projected to have an extraordinary year in 2024. The sector’s global economic contribution is expected to reach an unprecedented high of $11.1 trillion, setting a new record.

According to a report from the World Travel & Tourism Council (WTTC), the sector will surpass its previous record by an additional $770 billion, accounting for one out of every ten dollars worldwide. Out of the 185 countries analyzed, it is predicted that 142 countries will outperform their previous national records.

Read more: Saudi Arabia sets ambitious goal to rank among top 10 global tourism destinations in 2024

The WTTC’s 2024 Economic Impact Research (EIR), developed in collaboration with Oxford Economics, highlights that the travel and tourism sector supports nearly 348 million jobs worldwide. This represents a substantial increase of over 13.6 million jobs compared to its peak in 2019.

In terms of spending, international visitors are anticipated to approach the peak levels of 2019, reaching approximately $1.89 trillion. Furthermore, domestic tourists are projected to spend more than ever before, surpassing all previous records and reaching $5.4 trillion.

Strong global economic force

According to Julia Simpson, president and chief executive of WTTC, the travel and tourism sector continues to be a strong global economic force, even in the face of uncertainty. She emphasized that the current situation is not merely about surpassing previous records. Instead, it signifies the sector’s remarkable resurgence after a challenging period, delivering a substantial economic boost to countries worldwide and sustaining millions of jobs.

Simpson expressed concern regarding the need for support from the governments of the United States (U.S.) and China for their respective national travel and tourism sectors. She pointed out that without such support, these countries are at risk of experiencing ongoing challenges, while other nations are already witnessing a quicker return of international visitors.

Promising future, growth and career opportunities

The WTTC note that the international visitor spending in the U.S. last year remained more than 25 percent below the peak of 2019, while China’s visitor spend decreased by nearly 60 percent.

Looking forward, the WTTC predicts a promising future for the next decade, characterized by strong growth and exceptional career prospects.

The report further stated, that by 2034, this sector will greatly contribute to the global economy, generating an astonishing $16 trillion, which will constitute 11.4 percent of the entire economic landscape.

Moreover, this thriving industry is expected to be a significant source of job creation, offering employment opportunities to approximately 449 million individuals worldwide.

For more news on hospitality & tourism, click here .

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Travel to add a record US$11.1 trillion to global economy in 2024

THE travel industry’s global economic impact continues to gain ground. This year, it’s expected to reach a record-breaking US$11.1 trillion, surpassing its prior high of US$10 trillion in 2019.

 In another decade, tourism is forecast to become a US$16 trillion industry, at which point it would make up 11.4 per cent of the global gross domestic product.

Today, 1 in 10 people are employed in jobs that relate to tourism; by 2034, that will climb, with an estimated 12.2 per cent of global jobs contributing to the sector.

All this is part of the 2024 global Economic Impact Research released on Thursday (Apr 4) by the World Travel & Tourism Council (WTTC), the leading advocacy group focused on quantifying the industry’s economic impact at a global level. The findings, produced in collaboration with research advisory firm Oxford Economics, were shared exclusively with Bloomberg ahead of wider distribution. 

In order to create its forecasts, the analysts collect data from governments and industry groups that report on topics like international tourism arrivals and expenditures in the previous year, and combine it with proprietary, forward-looking assessments of travel supply and demand. 

To the experts at WTTC, the biggest numbers are the least surprising. The growth of the tourism industry being reported now is in step with previous projections reported by the group; last year, a similar study predicted that the sector would represent US$15.5 trillion by 2033. 

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But details within the report provide a more nuanced and notable picture: Travel’s record-setting rebound in 2023 came without much help from the Chinese and American markets, where international arrivals continued to lag significantly behind pre-pandemic levels. The likelihood that those markets will soon recover is what sets up the potential for record-breaking numbers this year. 

The 14-figure sums headlining WTTC’s report can be broken down into three types of travel transactions. Direct travel spending includes all expenses that are most clearly connected to the act of traveling: Think hotels, tours, and transportation, plus public investment in these types of services. Then there’s indirect travel spending, which quantifies the ripple effect of spending from those businesses. Among the types of expenses included in this category are sheets and towels that hotels purchase from local vendors, or ingredients purchased in bulk for the breakfast buffet. Lastly there’s induced spending, which accounts for the trickle-down effects of hospitality employees using their salaries to stimulate their local economies.

Julia Simpson, president and chief executive officer at World Travel & Tourism Council, speaking to Bloomberg from Boston, says that the US travel sector has been one exception because of how the dollar has strengthened, making a trip to the States more expensive for people in countries that are struggling with inflation.

Ongoing visa delays have also been a factor, she adds. US inbound international visitation spending remains at more than 25 per cent below pre-pandemic levels. In China, visitor spending lags by 60 per cent, making it the least-recovered tourism economy out of 185 countries in WTTC’s report. 

Also notable is the fact that more money continues to be spent on domestic travel versus international trips. This year, it will make up a record US$5.4 trillion, a 10 per cent increase from 2019 levels. 

All told, 142 out of the 185 surveyed countries are expected to exceed their 2019 tourism performance levels in 2024, and almost all of those are additionally expected to see year-over-year growth. That means that not only will the travel economy at large be breaking records this year–assuming all pans out as expected–but it will break records at each of those local levels, too. 

“Travel isn’t just back, travel is booming,” says WTTC’s Simpson. “We’re talking about a really, really strong sector.” BLOOMBERG

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Alice Springs tourism operators impacted by youth curfew call for economic support

Alice Springs tourism operators are desperately calling for federal economic support, with some reporting figures "worse than COVID", as the town's youth curfew continues.

Standley Chasm general manager Nova Pomare said recent media reporting of crime in the town had caused two major charter operators to pull out of Central Australia for the 2025 tourism season.

"They're just too afraid to come here," the Western Arrernte woman said.

"[They bring in] quite big numbers every week, three times a week 40-plus in the bus loads … so it's really disappointing they've done that."

Tourism Central Australia chief executive Danial Rochford said Easter was traditionally the time when Alice Springs "kickstarted" the season, but they were now bracing for a bleak six months.

He said a federal economic support package was urgently needed to keep the industry afloat.

"Ultimately, I think it is beyond the powers and financial resources of the Northern Territory government," he said.

"We just cannot withstand the barrage of challenges and issues that are being thrown at us."

'We've gone down and down'

Many operators said this downturn was "no surprise", and that the NT government hadn't done enough to address the key drivers behind crime and antisocial behaviour in the region.

Ms Pomare said she had been voicing her concerns "for months" with little action.

"I'm just disappointed that we're not looking at the root of the problem, and now we're just reacting to what's happening. It's not prevention," she said.

Ms Pomare called for a range of measures to address crime, including tougher alcohol laws and more truancy officers to keep kids in school.

She said she worried about the future of her business.

"We've built a really great Aboriginal workforce and we're really proud of what we do," she said.

"But the last five years we've just gone down and down, and people are leaving in fear."

Issues brewing 'for a long time'

Alice Springs Reptile Centre owner Rex Neindorf said his business had seen the "worst Easter on record", reporting figures 60 per cent down on last year.

"For the four days of Easter, we took about $2,600. And it cost us $2,500 to put our staff on, and that's without all the other operating costs," he said.

Mr Neindorf said issues had been brewing in the local tourism sector "for a long time" and went beyond crime, with cost-of-living pressures and soaring airfares also having an impact.

"We're going backwards at an absolute rate of knots and the government's doing nothing," he said.

"We're at breaking point."

The NT government said it was acting to save the sector, pointing to a discount scheme offering 25 per cent off all bookings through the Alice Springs and Yulara visitor centres.

It also highlighted its efforts to bring more airline routes to Central Australia over the past 12 months, including Bonza Airlines from Melbourne to Alice Springs, and Airnorth from Perth to Alice Springs.

'Local tourism is definitely dying'

But local operators said the government's tourism discount scheme was not enough.

"We're well over a million dollars lost already in the last few days of cancellations to the region," Mr Rochford said.

"This is certainly an unprecedented storm that our industry is having to face."

Arrernte Kaytetye man Liam Reid is the operations manager at 100% Finke River Culture and Adventure, an Aboriginal owned and operated tour guide company.

He said while their bookings appeared to be in good shape this tourism season, it broke his heart to see others in the industry suffering.

"Some of these businesses have been here since from when I was a kid, and to see them no longer exist because of the bad stuff that's happening on in town, it shouldn't be that way," he said.

"I've grown up in Alice Springs all my life. I see how it was back then to where it is now. There's definitely been some big, big problems.

"Local tourism is definitely dying."

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