Economic Impact of Tourism Industry

The tourism industry has contributed to the economic growth of a country through factors such as industrialization, education, advanced technology, more skilled professionals, open foreign markets, liberal trade policies and better advertising and strategic marketing. The revenue generated contributes to the national balance of payments, drawing revenue from direct taxation, as well as indirect taxes on goods and services purchased by tourists.

This article examines the economics of tourism, considering the unique characteristics of the sector and the positive and negative consequences of tourism for a destination. The chapter is designed to provide you with:

  • An understanding of the unique characteristics of the tourism sector;
  • Awareness of the importance of the economic evaluation of tourism and events;
  • An understanding of the ways in which tourism can bring economic benefits to a place
  • An awareness of the economic costs of tourism to a destination

Tourism is often described as one of the biggest industries in the world. It employs millions of people, has a turnover of several billion dollars and encourages millions of people to travel. In other words, it is an important economic sector and economists bring a certain discipline to its analysis. There is no doubt that economics has made a fundamental contribution to the study and understanding of tourism, as evidenced by the creation of the journal Tourism Economics in the 1990s. Tourism and related activities collectively strengthen reserves economies in the region, resulting in increased incomes and better disposable income. Tourism can also benefit regionally and locally, as money flows into urban and rural areas, which in turn stimulates new business ventures, larger markets and promotes a more positive image of the region.

Economics of the tourism industry

Economists remain at odds over whether tourism is really an industry and, if so, how to define and measure it. These issues arise in part because many industries are involved in delivering the tourism product as a service or “experience” and tourism has unique characteristics that we need to consider. As a result, research on tourism supply has focused on individual sectors rather than the structure of the sector as a whole.

Tourism is in fact only partially an industry since governments, communities and other stakeholders are involved in the delivery of the tourism product. Tourism is therefore an industry that challenges conventional economic paradigms. Yet it is important that we understand how its complex system works if we are to manage tourism effectively. Tourism is an important focus of policy intervention and development in many countries, as economic strategies focus on the income and employment generation potential of tourism.