The Economics of Tourism


Tourism is much more than meets the eye. One can indeed have a time of their life skiing in the Alps or sunbathing in the Caribbean beaches; but the economics behind the tourism industry globally affects the economic status of every country. Tourism industry in the 21st Century is one of the fastest growing industries. However, the monetary aspect of this field involves a crucially interconnected web of financial benefits between the host country and those involved in promoting tourism in a global scenario. In fact, according to an economic study the profits made in international tourism is much more than the combined profits made in global transactions of chemicals, petrol, automotive and food. Thus, this industry has been rightfully termed as the ‘World’s No. 1 export earner’.

However, on a close look at the above statement, it has been found that it is in reality nothing but a charade. Tourism indeed earns the host country a lot of financial benefits, but, out of those financial benefits how much is actually brought forward to the government of the host country. While it seems that the host country gains a lot of foreign revenue, one forgets the various ‘leakages’ in the system which prevents the total revenue earned to come under the political umbrella of the country. To understand this situation, it is necessary to have a look at the different types of ‘leakages’ in the system.

Degeneration of Local Business

Every tourist expects to receive a certain standard of facilities while travelling. Due to this the pressure of maintaining a high quality is very competitive. Most hotels and restaurants opt for the highest possible standards for which they display a variety of facilities which are not available locally. Due to this, the local businesses go unnoticed and suffer from a setback. A direct result of high standardization is that the local economy of the host country receives no boost in business. Furthermore, a heavy percentage of financial benefits are lost out to foreign trade investments who promote high quality of restaurants and hotels in host countries. According to a study, 70% of Thailand’s tourism revenue leaves its borders, 80% in the Caribbean Islands and 40% in India; showing that a large chunk of the earned proceeds are lost out on due to international investments.

Import Leakage

Following up on the previous point, more and more facilities are imported globally to make sure that the tourists are satisfied. There are hotels spanning acres of land with villas, spa centres, beaches, and multi cuisine restaurants; all with international standards of hospitality. Most of these international standards are imported from various countries. Thus giving rise to what is known as import leakage.

Export Leakage

Many a times, a global business tycoon makes an investment in constructing a hotel in a country. But, the benefits made from the hotel business are often taken to their residential country. Thus even if the host country earns a profit through such international investments, due to export leakage the profit fiancé is lost to international countries. This leaves a lesser margin of proceeds for the host country.

Enclave Tourism


Not many are familiar with the concept of Enclave Tourism, but are most common in cruises and luxurious holidays. Most cruise ships are made as self-sufficient entities. They consist of hotels, restaurants, shopping malls, gymnasium and recreational areas for children and adults. This provides the tourists all the facilities that they need within the cruise ship itself, thus lessening their chances of ever going ashore. Even if by chance tourists do go ashore then there are restrictions on local trade in such shorelines. This leads to minimum or nil profit for the host country on whose waters such internationally invested cruise ships are stationed.

Increasing economics of host countries

To top it all, the economics of the host country needs to be looked into as well. If the price of the commodities are rising or falling, it has a direct impact on the tourism industry. Food Products and Petrol Prices are the two most important parameters in this situation. The rise and fall of their prices have direct consequences on the tourism industry. The price to travel from one country to another is always changing, depending on the peak season, budget, price rise and the like. Moreover, during festive season the prices reach sky-high. Thus, national economic situation and budget of the host country plays an important part in tourism.

From the above points, it is clear that though tourism industry is a flourishing one, the nitty-gritty’s of this business cannot be and must not be overlooked. Tourism industry has a direct effect in world economy helps in the development of the third world and developing countries. A major percentage of their revenues are earned through tourism. Although, it is true that economically better off countries earn more profits but the profits of the third world countries cannot be undermined either in comparison to their national economy. To conclude, tourism industry has started spreading its wings globally, and in the days to come would reach new economic heights.


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