Skip main navigation

Economic impact

The economic impacts lie in the heart of tourism as a commercial activity which stimulates its emergence and growth.
© Coventry University. CC BY-NC 4.0 Images © Getty Images

The economic impacts lie in the heart of tourism as a commercial activity, which stimulates its emergence and growth. The economic impacts of tourism fundamentally influence the other possible impacts of tourism.

These economic impacts include the direct, indirect, and induced impacts tourism might have on GDP, trade and investment at national, regional, and global levels.

Direct, indirect, induced impacts

The direct level of impact is the value of tourist expenditure less the value of imports necessary to supply those ‘frontline’ goods and services.

Tourist expenditures might be for goods and services in the destination, in the form of business receipts, income, employment, and government receipts from the sectors that directly receive the tourism expenditure.

The indirect level of impact refers to the generation of economic activity brought about by subsequent rounds of expenditure by establishments that directly receive the tourist expenditure. It can be measured in the circulation of the tourism expenditure in the destination through transactions between businesses in the destination economy (regional or national).

The induced effects are the income accrued within the destination by local residents in the form of wages, salaries, distributed profit, rent and interest.

The addition to local income will, in part, be respent in the local economy on goods and services and this will generate yet further rounds of economic activities (Fletcher et al., 2018).

" "

The economic multiplier and leakages

Indirect and induced benefits are also referred to as the secondary effect or multiplier effect.

Multipliers measure the effect of revenues introduced into an economy.

Revenues may ‘leak’ out of the local economy in the form of: payment for imported goods and for promotion and advertising by companies based outside the destination (import leakages), repatriation of profits to foreign corporations and salaries to non-local managers (export leakages) money saved (without re-investment) (Boz, 2012; Fletcher et al., 2018).

The full effect of direct and indirect, as well as multipliers and leakages, is demonstrated in this figure:

Direct effects begins with tourist money which feeds into tourist businesses. Tourist businesses then feed that money into four areas: Imports (leakages), Government revenue, Household income, and Local inter-industry purchases. If the money feeds into household income it may feed into three areas; Imports (leakage), savings, and Local household purchases. The money which has fed into Government revenue, Local household purchases (via household income), and Local inter-industry purchases it then feeds into all businesses at which point the effects of tourist money become indirect. From all businesses the money follows the same paths as it does from direct tourist money. All businesses feed money into four areas: Imports (leakages), Government revenue, Household income, and Local inter-industry purchases. If the money feeds into household income it may feed into three areas; Imports (leakage), savings, and Local household purchases. The money which has fed into Government revenue, Local household purchases (via household income), and Local inter-industry purchases it then feeds into all businesses. From there the cycle repeats until the money in circulation becomes insignificant.

The figure is expandable and adapted from Fletcher et al. (2018)

Your task

Provide your own examples demonstrating direct economic impact and indirect economic impact. Describe both the situation and the impact.

References

Boz, A. M. (2011). Leakages and value added in international tourism revenues; tourism satellite account as a measurement method. International Journal of Business and Social Science, 2(24).

Fletcher, J., Fyall, A., Gilbert, D. & Wanhill, S. (2018). Tourism: Principles and practice (6th ed). Pearson. https://locate.coventry.ac.uk/permalink/f/gr8698/COV_ALMA51103766060002011

Sharpley, R. (2008). Tourism, tourists and society (4th ed). Elm Publications

Sharpley, R. & Telfer, D. J. (2014). Tourism and development: Concepts and issues. Channel View Publications.

© Coventry University. CC BY-NC 4.0 Images © Getty Images
This article is from the free online

The Impacts of Tourism

Created by
FutureLearn - Learning For Life

Our purpose is to transform access to education.

We offer a diverse selection of courses from leading universities and cultural institutions from around the world. These are delivered one step at a time, and are accessible on mobile, tablet and desktop, so you can fit learning around your life.

We believe learning should be an enjoyable, social experience, so our courses offer the opportunity to discuss what you’re learning with others as you go, helping you make fresh discoveries and form new ideas.
You can unlock new opportunities with unlimited access to hundreds of online short courses for a year by subscribing to our Unlimited package. Build your knowledge with top universities and organisations.

Learn more about how FutureLearn is transforming access to education