What this lesson teaches
I can explain how tourism affects a place's economy: jobs, income, leakage and dependence.
Syllabus K335, Topic 2.2, Key Question 2. How does tourism affect the economies of places?
Make a guess
A foreign-owned beach resort earns a lot from tourists, imports most of its food and sends profits overseas. How much of the spending stays in the area?
- Less than the resort earns, as much leaks out.
- None of it, so the area gains no benefit from it.
- Nearly every dollar, because tourists spend it there.
- It depends on how many tourists visit each year.
Show the answer
Less than the resort earns, as much leaks out.
Imports and overseas profits are economic leakage. The receipts look large, but a smaller share of the money stays in the local economy.
Leakage is tourism money that leaves the area, and overdependence makes a place vulnerable when visitors stop coming.
Economic leakage is when tourism income leaves the economy you are studying. A hotel may import food, pay a foreign booking website or send profits to overseas owners. These payments may buy useful things, but they leave less of the visitor's spending in the destination.
First define what local means. Money that leaves a village may still stay in the country. Tourism receipts are the money received from visitors; that is not the same as the money that stays locally.
Local ownership and buying local goods keep more income nearby. But local suppliers must meet hotels' needs reliably, and workers need fair terms. Training and support can help them take part. Cutting out all imports is not always possible or necessary.
Sort these
A tourist spends money on an island. Does each payment mostly stay on the island or leak out of it?
Groups: Mostly stays on the island, Mostly leaks out.
- A hotel imports most of its food from abroad
- A foreign-owned resort sends profits to its head office overseas
- A hotel buys fish from island fishers
- A locally owned guesthouse keeps its profits on the island
- Rooms are booked through a foreign website that keeps a fee
- A guide who lives on the island spends wages in local shops
Show the answer
Mostly stays on the island
- A hotel buys fish from island fishers Buying local goods turns tourist spending into income for island suppliers.
- A locally owned guesthouse keeps its profits on the island Local ownership means the profit is earned and kept by island residents.
- A guide who lives on the island spends wages in local shops Wages spent locally pass the money on to other island businesses.
Mostly leaks out
- A hotel imports most of its food from abroad Payments for imports go to producers outside the island, so that money leaves.
- A foreign-owned resort sends profits to its head office overseas Profits paid to overseas owners leave the destination economy.
- Rooms are booked through a foreign website that keeps a fee The booking fee is paid to a company outside the island, so it leaks.
Overdependence is a separate risk. When many jobs, businesses and government revenues depend on tourism, a fall in visitors spreads through the whole economy. A pandemic, disaster or recession can close hotels, cut suppliers' orders and reduce household spending.
A wider mix of jobs and industries reduces this risk. Savings and more reliable supply arrangements also help businesses survive disruption. But these alternatives need investment and skills; they do not appear automatically.
- Leakage
- Tourism money that leaves the area.
- Overdependence
- Relying too heavily on tourism.
- Reduce the risk
- Buy local; build a wider mix of jobs.
Step by step
Define local
A village, a region or a country?
Follow the money
What stays, and what leaves?
Test a shock
What happens if visitors suddenly stop?
Real examples to use
All-inclusive resorts
In foreign-owned all-inclusive resorts, much of what tourists spend goes to overseas companies and imported food, so less stays in the local economy.
COVID-19 and tourism-dependent islands
Places that rely heavily on tourism, such as the Maldives and many Caribbean islands, lost much of their income when travel stopped in 2020.
Worked example: Follow the first $100
In a made-up example, a visitor pays $100. $70 goes to local workers, suppliers and owners. $30 leaves the destination. So first-round leakage is 30%. This only tracks the first payments, not later spending.
Watch out for this
Leakage and overdependence mean the same thing.
Leakage is about where money goes. Dependence is about how much people rely on tourism.
Check your understanding
A hotel imports most of its food and sends profits abroad. What does this show most directly?
- That there are no jobs in the destination.
- Economic leakage of money from the destination.
- That the destination has no other industries.
Show the answer
Economic leakage of money from the destination.
Yes. Money is leaving the local economy.
Check your understanding
Which situation shows economic leakage from tourism?
- A local farmer sells vegetables and fruit to a foreign-owned hotel.
- A local family runs a homestay for foreign tourists.
- Tourists spend at a foreign-owned resort that imports food.
Show the answer
Tourists spend at a foreign-owned resort that imports food.
Much of the money leaves the local economy.