7/28/2019 A Debate Has Arisen Over the Actual Effects the Tourism Industry Has Within Developing Countries

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A debate has arisen over the actual effects the tourism industry has within developing

countries, and to what extent it helps the poor.

ByJoanna Kalafatis 

on Oct 1, 2010

Investing in infrastructure and marketing for tourism is often considered a good strategy for  boosting a nation’s economy. However, recent debates have arisen concerning the actual effect

tourism has within developing countries, and to what extent it helps those most in need of 

financial assistance.

Leakages in the Tourism Sector 

The major drawback to earnings from tourism occurs because of “leakages” - tourism industryearnings that accrue outside the host country. Leakages occur because a sizable percentage of 

tourism infrastructure is usually foreign-owned and operated. A paper by Blake and Arbache

estimates that 55% to 75% of tourism spending “leaks back to developed countries.”

Bhatia published a recent paper, “Tourist Development: Principles and Practice”, which provides

a more detailed account of leakages, showing that they occur primarily in three ways:

Some tourism employment may be given to foreign workers, thus part of the jobs and incomefrom tourism accrues to them.

Indirect and direct taxation of tourist activities may result in revenue that is not reinvested in

the host area.

Tourism earnings, which are mostly received in foreign exchange, may be spent on imports

or on debts to foreign governments, thus providing no net benefit to the domesticeconomy and population.

The Crowding Out Potential of TourismOther economists believe that an expansion of the tourist sector can “crowd out” other industries.This leads to a lower demand for traditional exports and import competing industries within the

economy.

The “crowding out” conclusion is based on the theory that tourism causes a direct increase in

demand in non-tradable sectors (hotels, resorts, restaurants, domestic transportation services).

This leads to an increase in prices for those services, which in turn attract resources from other 

sectors of the economy (under the law of one price assumption), leading to a contraction of tradable sectors. Because of this contraction, exports fall while imports rise.

Unequal Gains: The Poor and the Rich

Wattanakuljarus’ study of tourism in Thailand also found that tourism does not substantially

 benefit the country’s poor, and thus cannot be used as a pro-poor development strategy. Though

the general equilibrium model he used shows that all income classes obtain some benefit fromtourism, the benefits are concentrated in high income and non-agricultural households. So

tourism-oriented development may cause inequality to increase due to this disproportionate

spread of economic gains.

Exogenous Shocks

7/28/2019 A Debate Has Arisen Over the Actual Effects the Tourism Industry Has Within Developing Countries

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The study additionally indicates that tourism is vulnerable to what economists term “exogenous

shocks in demand” (caused by factors such as natural disasters, global terrorists incidents,

disease outbreaks, etc.), that cannot be controlled by domestic macroeconomic policy.

Such shocks can lead to harmful effects for a country that exhibits over-reliance on the tourist

sector in the event of a negative exogenous shock; the tourist economy will slump and there is no

 policy tool to provide immediate remediation in this sector.

Poor Employment Opportunities

Lastly, the employment created by the tourist sector may disadvantage local poor populations, asit is often seasonal, low-paying, and exploitative. Such employment creates little opportunity for 

economic advancement and improved quality of life.

Tourism can still be an engine for economic growth, but it has to be implemented appropriately by a stable government. The idea of tourism itself as a path to progress for the poor is not flawed,

 but the above possible negative effects must be considered and controlled.

Sources:

Bhatia, A. K. (2002). Tourism Development: Principles and Practice. New Delhi, India