Tourism and Its Economic Impact

Economic Effects of Tourism There are a number of economic effects of tourism. Most obvious is the significant direct economic effect. Tourists spend money on hotels, restaurants, tourist attractions, shopping, and bars. This is money that typically comes from outside the economy, and thus provides a direct and immediate boost to the area's GDP. There are many benefits of this. First, it provides revenue for local businesses. This revenue translates into jobs for all businesses. For locally-owned businesses, it also provides profits for the owners, which can be re-invested.

For example, a successful restaurant can take its profits and open a second location, thereby doubling its positive impact on the community and the wealth of the owners. Jobs created of course contribute in many ways to the economy. Workers buy homes, cars, they spend their money in the community in other ways. They raise families, and their children often stay in the area, and contribute to the economy later on in life.

When a worker at, say, a hotel spends all of his or her money in the area, that contributes to economic growth outside of the tourism sector. This growth allows non-tourism businesses to thrive. This creates economic spinoff effects, where the amount of money that comes in from tourism ends up being multiplied as it cycles through the local economy. Taxes are another benefit of tourism. Government collects things like sales taxes and hotel taxes from tourists. This represents more money that is coming into the area from outside.

By increasing the local tax base, tourism allows for a better standard of government services provided to the local community, lower taxes, or ideally both. Where tourism is a dominant contributor to the tax base, this provides significant opportunity to benefit the local community -- outsiders are essentially paying for things that the locals use. Where tourism is strong, this also creates investment opportunities. Such opportunities typically involve bringing in money from outside to invest in the area.

Large scale projects such a major hotels are great examples of outside investment in an area, where external capital comes into the region and then contributes to the local economy. Such external investment comes at a price, to the extent that profits are less likely to be reinvested in the local community, but large projects often create substantial employment first in the construction sector and then later in the hospitality sector.

Another spinoff effect, especially surrounding big event tourism, is that it brings so many people to the country and provides an opportunity for the country to sell itself to people from around the world. Such opportunities might not arise if an area is off the radar with respect to tourism, but when people visit a place and enjoy their time, they may be attracted either to living there or to investing in economic opportunities there, or both.

This is why cities and countries are willing to invest so much into something like the Olympics or the World Cup -- it provides a means to attract billions in investment capital. There are some downsides to tourism as a major source of an economy in a country. Most of the countries that have experienced long-term economic success have done so on the basis of having diversified economies. So a tourism-dependent economy.