Home Travel Industry The Economic Impact of Tourism: What You Need to Know

The Economic Impact of Tourism: What You Need to Know

The Economic Impact of Tourism: What You Need to Know
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14 min.

Tourism encompasses much more than just leisurely vacations and exploring far-off destinations. In fact, this vast industry plays a significant role in keeping the world economy thriving. 

When the world shut down due to the COVID-19 pandemic, we saw its devastating effects on the tourism industry. Airports were shut down, hotels were left empty, and online travel agencies experienced a complete halt in revenue. 

Like the rest of the world, the travel and tourism industry was in a state of limbo.

As we look to the future, it’s important to remember the power of tourism and its impacts on the global economy. In 2023, the tourism sector’s global market size is anticipated to exceed 2019, with a market size estimated at $2.29tn.

The impact of tourism on the economy extends beyond generating income and employment. It acts as a growth engine, stimulating investment in infrastructure, promoting sustainable development, and fostering the conservation of cultural and natural heritage. This multifaceted influence demonstrates how tourism is fundamental to global economic development.

Global Tourism Market Growth

In this blog post, we’ll explore how tourism contributes to the economy and why it should be a priority for everyone.

How Much Does Tourism Contribute to the Global Economy?

Travel isn’t just good for the soul; it’s good for the economy. Let’s break down the numbers.

Contribution to Global GDP

Exploring the impact of tourism on the economy requires a detailed look at its contribution to the global GDP. This contribution is not only a direct reflection of tourist spending but also an indicator of how tourism stimulates the economy through job creation, infrastructure investment, and a boost to related industries.

In 2019, the travel and tourism industry accounted for 10.4% of global GDP – that’s $10 trillion! In 2022, the industry reached 7.6% of GDP.

Tourism Contribution to Global GDP

Not only does this include the direct spending by tourists in hotels, restaurants, and attractions, but it also includes indirect spending in industries such as transportation, shopping, and entertainment.

This data indicates the industry’s resilience and potential to bounce back. The travel and tourism industry will continue to contribute to the global economy.

Job Creation

In 2022, the tourism industry supported over 22 million jobs. When people think of tourism-related jobs, they usually think of travel agents, hotel staff, and workers at tourist attractions. However, there are also millions of people around the world who work in tourism and related industries.

Tourism-Driven Job Creation in 2022

The Interconnectedness of the Tourism Industry with Other Industries

The tourism industry is intricately connected to a wide array of other industries. 

It’s challenging to measure tourism’s exact contributions due to the level of fragmentation within the industry. However, its actual values are expected to be far greater than reported. This is because travelers also contribute to non-travel sectors such as retail, recreation, and entertainment.

Tourism is a significant driver of economic prosperity as it contributes to job creation and spurs innovation and investments.

The Relationship Between Tourism and Economic Growth

Given the significant impact of tourism on the global economy, it’s important to examine the relationship between tourism and economic growth.

Tourism as a Driver for Economic Growth 

Increased demand stimulates the economy by creating jobs in different sectors, from hospitality to transport which brings in more revenue and opportunities for growth within the community.

Zurab Pololikashvili, the secretary general of UNWTO, said, Global tourism is on track to return to pre-pandemic levels by the end of year. By investing in people and projects that make a difference, we can deliver on the sector’s potential to drive growth and opportunity for all.”

In tourism, there are jobs that are directly related to tourism and tourism spending; for example, when a tourist travels to Barcelona, they will spend money on hotels, tour guides, and activities.

But there are also those indirectly related to tourism; for instance, when they go to a restaurant in the city or shop at a local store, they contribute to the local economy.

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The Multiplier Effect of Tourism

The interconnectedness of tourism also leads to the multiplier effect, which amplifies the economic impact of tourism on a region or country. 

Multiplier Effect of Tourism

The Journal of Risk and Financial Management conducted a study that found “The impact of tourism activity on economic development is determined by the current multiplier mechanism created by the existing revenue-expenditure flow in the sector due to international tourism movements.” 

Tourism also has a multiplier effect on other industries. For example, suppose a tourist spends money on a hotel room. In that case, the hotel purchases goods and services from other businesses, such as food, linen, and toiletries. These businesses, in turn, purchase goods and services from other companies, and the cycle continues.

This means that the economic impact of tourism is not limited to the tourism industry but spreads across various sectors of the economy. The expenditure of international tourists on tourism can generate income that may result in new revenue streams, investments, savings, and consumption.

The Role of Online Travel Agencies in Promoting Economic Growth 

Online travel agencies play an important role in promoting economic growth and development. They help connect travelers with different hotels, flights, and activities. 

However, they don’t just help them find the right place to stay or flight to book. OTAs also provide travelers with inspiration, knowledge, and insights to help them make the best trip decisions.

Their promotional activities can fastly increase the economic growth of the regions they promote. For instance, OTAs can promote different destinations and activities they may not know. Whether it’s a destination in the countryside or a less-traveled area such as many developing countries.

In addition to traditional methods of economic growth in tourism, the importance of exploring sustainable approaches, cannot be overstated. Gain a deeper understanding of this forward-thinking practice, which includes diverse examples and effective implementation strategies, in our in-depth exploration about what is regenerative tourism.

Benefits of Tourism

Tourism provides numerous benefits to economies around the world, playing a crucial role in both local and global contexts. Here are some of the key benefits of tourism:

    Economic Growth: Tourism significantly contributes to economic growth by generating income and employment. It accounts for about 10% of global GDP and employs one in ten people worldwide​​. Tourism stimulates local economies through direct spending on goods and services, creating jobs in hotels, restaurants, and other tourism-related businesses.

    Job Creation: Tourism creates a wide range of jobs, not only in the tourism sectors such as hospitality and travel services but also in related industries like retail and transportation. In regions with high unemployment rates, tourism can be a vital source of employment​.

    Cultural Preservation: Tourism helps preserve cultural heritage by providing financial resources needed for the maintenance of cultural sites and traditions. For instance, entrance fees from tourists visiting heritage sites often fund the preservation and operation of these sites​.

    Environmental Conservation: Tourism can support environmental conservation by funding the creation and maintenance of national parks and protected areas. Tourists’ demand for natural and historical sites can lead to increased efforts to conserve these areas​​.

    Positive Social Effects: The economic benefits of tourism can lead to improved infrastructure and services, such as better roads, healthcare facilities, and education. These improvements benefit not only tourists but also local communities, enhancing the overall quality of life.

    Global Awareness and Learning: Tourism encourages global awareness and cross-cultural understanding. By interacting with different cultures, tourists and locals alike can develop a deeper appreciation for cultural diversity, fostering a sense of global community​.

How Does Tourism Affect Developing Countries?

When tourists spend more money when they travel, and the money they spend is reinvested into the local economy, tourism directly impacts the economy.

Tourism increases economic activity. The influx of tourists drives up local businesses’ demand for services and products, creating jobs, increasing revenue, and reducing poverty.

Direct benefits include those created by tourism-related activities such as accommodation, transport, and attractions. Indirect benefits come from supporting activities to tourism, such as construction and retailing. 

Tourism also benefits developing countries in other ways, such as improving the perception of their country on the global stage and increasing foreign investment.

Challenges and Opportunities for Online Travel Agencies in Emerging Markets

In John Lea’s book, Tourism and Developments in the Third World, he discusses how small island communities depend more on foreign tourism than bigger countries. Island tourism can be a lifeline for many people in these places, particularly regarding job creation and economic opportunities. 

However, challenges like limited infrastructure, political instability, and lack of local tourism products still exist. 

The 5 A’s of tourism – attractions, activities, accessibility, accommodation, and amenities, play a significant role in determining the success of tourism in any destination. By improving these areas, emerging markets can better leverage and capitalize on their tourism potential.

Online travel agencies can play a crucial role in driving economic growth in these markets:

  • They have the potential to access untapped opportunities that are often overlooked.
  • They can promote lesser-known tourist hotspots with potential. 
  • They can partner with governments and local tourism stakeholders in emerging markets.
  • They are more agile and better equipped to respond quickly to changing market needs.
  • They can enable local players to expand their reach, open up new markets, and create economic value. 
  • They can provide a platform for local businesses to showcase their products.

Case Studies of Successful Tourism Development in Developing Countries

Case Studies of Tourism - Development in Developing Countries

South Africa

South Africa is an excellent example of a developing country that has successfully utilized tourism as an integral part of its economic growth plan. 

The tourism industry accounts for 3.7% of South Africa’s GDP. This is higher than the contribution of agriculture, utilities, and construction.

The country’s abundance of natural and cultural resources makes it a popular tourist destination for people worldwide. With its stunning beaches, mountains, and diverse wildlife reserves, it has become one of Africa’s most popular tourism destinations.

South African Tourism (SAT) and the Department of Tourism have aligned their strategic plan for 2020-2025 to encourage the growth and development of tourism in South Africa. This includes providing efficient marketing for tourist destinations and improving cooperation between different levels of government in managing tourism.

The accommodation industry’s total income in September 2022 increased by 79.3% compared to September 2021. Among all accommodation options, hotels experienced the most significant increase in total income, with a 118.6% rise.

Egypt

Egypt is another great example of a developing country that has seen success in the tourism industry. Egypt’s tourism earnings are expected to reach $13.6 billion in 2023.

The Minister of Tourism, Ahmed Issa, aims to achieve an annual growth rate of 25% to 30%. This is part of Egypt’s plan to attract 30 million tourists by 2028. They aim to invest $30bn (30,000 rooms) to meet anticipated demand. Additionally, they plan to invest investment in customer experiences.

The focus of the Egyptian government is to offer improved tourism experiences. This includes promoting cultural heritage sites, nature-based tourism activities, and other diverse tourist attractions unique to Egypt.

India

India is another developing country rapidly gaining traction in the tourism industry. India’s total contribution to GDP in Travel & Tourism ranked sixth in 2022. Tourism jobs are expected to increase by 8.3%, reaching nearly 35 million employment opportunities.

The Ministry of Tourism launched the Swadesh Darshan scheme to promote theme-based tourism in India and harness its potential for development.

Their goals are to improve the local economies, generate job opportunities, promote industry skill development, increase private sector investment, and conserve local cultural and natural resources.

What Are the Four Economic Impacts of Tourism?

Four economic impacts of tourism

1. Infrastructure Development

Tourism provides the government and private sector with the revenue to invest in the infrastructure required for tourism activities. This includes the construction and renovation of roads, highways, and airports. For example, increased tourism can lead to improved access and transportation networks, which benefit the local economy and travelers alike.

2. Cultural Preservation 

Tourism also plays a role in preserving historical sites and cultural traditions. As many visitors worldwide flock to a destination to learn about its history and culture, tourism can help generate sufficient funds for cultural conservation efforts.

3. Natural Resources

Tourism can provide incentives for protecting and preserving natural resources and ecosystems. By introducing sustainable tourism practices, areas with important biodiversity can be better safeguarded against destruction while delivering economic benefits to the local community.

4. Local Entrepreneurship and Small Business Growth

The influx of visitors to a destination can also stimulate the growth of small, locally-owned businesses. Restaurants and retail stores often experience increased profits. At the same time, entrepreneurs can take advantage of new opportunities in the tourism industry.

Leveraging the Power of Tourism for Online Travel Agencies

Online travel agencies play a vital role in the tourism industry, providing the convenience of booking services with just a few clicks. With the right strategies, OTAs can leverage the power of tourism to maximize its economic impact. 

Strategies for Maximizing the Positive Economic Impact of Tourism:

There are three strategies for maximizing the positive impact of tourism: understanding the local economy, promoting responsible and sustainable tourism practices, and adapting to evolving trends in the tourism industry.

Strategies for Maximizing the Positive Economic Impact of Tourism

1. Understand the Local Economy. 

To better serve your clients, it’s crucial to comprehend how tourism can economically benefit various regions based on the type of travel agency you operate. This knowledge can then aid you in aligning your clients’ interests with your business goals.

For example, tourists visiting a region may stimulate local businesses and introduce new products that would otherwise not be available. This can have a ripple effect on the local economy.

2. Promoting Responsible and Sustainable Tourism Practices

The way online travel agencies advertise and promote their services based on responsible and sustainable tourism practices has changed over the years. 

OTAs can support this by promoting sustainable and ethical travel opportunities that empower local communities.

For example, an OTA may promote eco-friendly accommodations, sustainable tour operators, and local community initiatives.

3. Adapting to Evolving Trends in the Tourism Industry

Tourists often seek out new experiences, and OTAs can provide information about activities that match their interests.

For example, experiential travel, which focuses on activities such as cultural experiences and outdoor adventures, has been gaining traction in recent years.

Conclusion

The economic impact of tourism is enormous, and the industry has the potential to be a significant driver of global economic growth. 

OTA’s have an important role to play in the continued success of this sector, and understanding the economic impact that tourism has on their business can help them make smart decisions and continue to grow their business.
Tourism affects not only these agencies but also hotels, airlines, and other related businesses. Additionally, the industry provides many opportunities for growth and development in the tourism sector. As governments worldwide strive to create more sustainable and environmentally conscious development models, the tourism industry can provide a key source of income and job opportunities.

For insights into successful tourism marketing strategies, offering valuable perspectives and case studies and, as we explore the significant economic impact of tourism, it’s also important to understand how effective campaigns in tourism can amplify this impact.

Importance of Tourism in the economy
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