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How Does Tourism Benefit Local Communities?

Tourism is a thriving industry that not only brings in visitors from around the world but also has significant positive impacts on local communities. While the economic benefits of tourism are well-known, its contributions to social, cultural, and environmental aspects are often overlooked. This article will explore how tourism can catalyze sustainable development and create a range of advantages for local communities.

Economic Growth and Job Creation: One of the most apparent benefits of tourism is its role in generating economic growth and employment opportunities. Tourists visit a destination and spend money on accommodation, transportation, food, shopping, and various services. This expenditure stimulates the local economy, increasing business activities and new jobs. Hotels, restaurants, tour operators, and local artisans are among the many businesses that directly benefit from the influx of tourists.

Preservation of Cultural Heritage: Tourism plays a significant role in preserving and promoting the cultural heritage of local communities. Visitors are often eager to explore a destination's unique traditions, customs, and historical sites. This creates a demand for cultural experiences, encouraging locals to preserve their traditions and showcase their heritage. By valuing their cultural assets, communities are motivated to protect historical landmarks, monuments, festivals, and traditional craftsmanship, which might have been neglected or forgotten.

Community Development and Infrastructure Improvement: Tourism can lead to the development of community infrastructure and public services. The revenue generated from tourism can be reinvested in improving transportation networks, healthcare facilities, educational institutions, and public spaces. This benefits tourists and enhances the quality of life for local residents. Additionally, the need to provide a positive visitor experience can encourage communities to invest in better facilities, amenities, and attractions, which ultimately benefit both tourists and locals alike.

Encouragement of Small Businesses and Entrepreneurship: The tourism industry allows small businesses and local entrepreneurs to thrive. Locals can establish their guesthouses, homestays, restaurants, tour companies, souvenir shops, and other tourism-related enterprises. This fosters entrepreneurship and empowers individuals within the community, promoting self-sufficiency and economic diversification. The growth of small businesses contributes to a more balanced and sustainable local economy, reducing dependency on a single industry.

Cultural Exchanges and Social Understanding: Tourism acts as a bridge for cultural exchange, fostering greater understanding and appreciation between visitors and locals. When tourists engage with the community, they gain insights into the local way of life, traditions, and customs. Similarly, locals can learn about different cultures, perspectives, and values. These interactions promote mutual respect and tolerance, breaking down stereotypes and fostering a sense of global citizenship.

Environmental Conservation and Sustainable Practices: Tourism can also drive environmental conservation and sustainable practices. Destinations with natural attractions often rely on preserving their environment to attract tourists. This incentivizes local communities to protect and conserve their natural resources, such as forests, wildlife, and marine ecosystems. Sustainable tourism practices, including responsible waste management, energy conservation, and eco-friendly initiatives, can benefit the environment and the community's long-term well-being.

RELATED: Train Your Tourism Ambassadors

Conclusion: Tourism brings many benefits to local communities beyond economic gains. It contributes to cultural preservation, infrastructure development, entrepreneurship, social understanding, and environmental conservation. By embracing sustainable tourism practices and involving local communities in decision-making processes, we can ensure that the positive impacts of tourism are maximized while minimizing its potential negative consequences. As travelers, we have the power to support and promote tourism that benefits local communities, ultimately creating a more inclusive and sustainable world.

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Related articles, the best time to launch your tourism ambassador training, the tourism academy's role in preserving local culture and natural habitats: empowering dmos, leveraging online learning to build a sustainable tourism economy: a case study of rwenzori tourism academy in uganda, bordering a unesco site.

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Importance of Tourism to Local Economies

Why Is Local Tourism Important?

Drawing visitors from far and wide has substantial benefits. When tourists travel to a community, they bring opportunities for local business owners and the hard-working individuals who hold the area together. Ultimately, tourism paves the way for positive change. Businesses and governments allocate resources to enhance the visitor experience while improving residents’ everyday lives.

Click here to see recent statistics from the US Travel Association about the economic impact of tourism in the state and county.

An influx in tourism creates the demand for businesses to grow their service offerings. Existing companies improve their services while discovering new offerings that please out-of-town guests.

Simultaneously, new businesses emerge to add to the community. From dining options to entertainment venues, museums, transportation services, healthcare facilities and beyond, tourism encourages new developments that residents can enjoy year-round.

Job Opportunities

As new service offerings and businesses emerge in a bustling tourism community, so do employment opportunities. Existing businesses find ways to expand while new ones appear, creating new roles for locals to fill.

Industries like hospitality, food service and travel, in particular, produce new job openings. New entrepreneurial opportunities emerge as well. Services like Airbnb empower residents to earn revenue from tourists looking for a comfortable, local place to stay.

Infrastructure

Increased tourism can motivate local governments to improve local infrastructure:

• Accessible public transportation and smooth roadways help tourists experience more of the community.
• Telecommunication improvements enable tourists to share their experiences with friends and family.
• Better water and sewage systems can satisfy the increased demand while ensuring a comfortable stay.

Such improvements benefit residents daily at every economic level.

Visitors spend money with the community’s businesses. Restaurants , retail stores, boutiques and businesses of all varieties have the potential to earn more when their community attracts tourists. As a result, everyone from business owners to employees will have more to spend within the local economy. The increase in sales tax revenue will fund important infrastructural and environmental endeavors in the community.

Tourism helps preserve and evolve a community’s culture. Visitors eagerly engage in the history and traditions that make the town tick, providing an opportunity for locals to embrace their roots. Local museums and historical sites can see increased attendance, while the community’s artists can spread their stories and tell new ones.

Meanwhile, tourists bring their perspectives and traditions to the communities they visit. The cultural interchanges that coincide with tourism can have lasting positive effects on the community.

Help CAEDC Support & Grow Tourism

Cumberland Area Economic Development Corporation (CAEDC) is also the designated destination marketing organization for Cumberland Valley and responsible for promoting the area’s attractions, shops, restaurants, and lodging properties. View our tourism site at www.VisitCumberlandValley.com to learn more. While the tourism arm of CAEDC is non-membership, please contact us to learn how you can participate with the tourism-side of our agency.

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The Importance of Tourism on Economies and Businesses

Published: 3/26/2019 12:21:08 PM

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Tourism is vital for the success of many economies around the world. There are several benefits of tourism on host destinations.  Tourism boosts the revenue of the economy, creates thousands of jobs, develops the infrastructures of a country, and plants a sense of cultural exchange between foreigners and citizens.

The number of jobs created by tourism in many different areas is significant. These jobs are not only a part of the tourism sector but may also include the agricultural sector, communication sector, health sector, and the educational sector. Many tourists travel to experience the hosting destination’s culture, different traditions, and gastronomy. This is very profitable to local restaurants, shopping centers, and stores. Melbourne, Australia ’s population is greatly affected by tourism. It has a population of around 4 million people and around 22,000 citizens are employed by the tourism sector only.

Governments that rely on tourism for a big percentage of their revenue invest a lot in the infrastructure of the country . They want more and more tourists to visit their country which means that safe and advanced facilities are necessary. This leads to new roads and highways, developed parks, improved public spaces, new airports, and possibly better schools and hospitals. Safe and innovative infrastructures allow for a smooth flow of goods and services. Moreover, local people experience an opportunity for economic and educational growth.

Tourism creates a cultural exchange between tourists and local citizens. Exhibitions, conferences, and events usually attract foreigners. Organizing authorities usually gain profits from registration fees, gift sales, exhibition spaces, and sales of media copyright. Furthermore, foreign tourists bring diversity and cultural enrichment to the hosting country.

Tourism is a great opportunity for foreigners to learn about a new culture, but it also creates many opportunities for local citizens . It allows young entrepreneurs to establish new products and services that would not be sustainable on the local population of residents alone. Moreover, residents experience the benefits that come with tourism occurring in their own country.

To learn about the countries earning the most from international tourist arrivals, click on the link below!

Countries Earning the Most from International Tourism

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• Open access
• Published: 05 January 2021

The relationship between tourism and economic growth among BRICS countries: a panel cointegration analysis

• Haroon Rasool   ORCID: orcid.org/0000-0002-0083-4553 1 ,
• Shafat Maqbool 2 &
• Md. Tarique 1  

Future Business Journal volume  7 , Article number:  1 ( 2021 ) Cite this article

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Tourism has become the world’s third-largest export industry after fuels and chemicals, and ahead of food and automotive products. From last few years, there has been a great surge in international tourism, culminates to 7% share of World’s total exports in 2016. To this end, the study attempts to examine the relationship between inbound tourism, financial development and economic growth by using the panel data over the period 1995–2015 for five BRICS (Brazil, Russia, India, China and South Africa) countries. The results of panel ARDL cointegration test indicate that tourism, financial development and economic growth are cointegrated in the long run. Further, the Granger causality analysis demonstrates that the causality between inbound tourism and economic growth is bi-directional, thus validates the ‘feedback-hypothesis’ in BRICS countries. The study suggests that BRICS countries should promote favorable tourism policies to push up the economic growth and in turn economic growth will positively contribute to international tourism.

Introduction

World Tourism Day 2015 was celebrated around the theme ‘One Billion Tourists; One Billion Opportunities’ highlighting the transformative potential of one billion tourists. With more than one billion tourists traveling to an international destination every year, tourism has become a leading economic sector, contributing 9.8% of global GDP and represents 7% of the world’s total exports [ 59 ]. According to the World Tourism Organization, the year 2013 saw more than 1.087 billion Foreign Tourist Arrivals and US $1075 billion foreign tourism receipts. The contribution of travel and tourism to gross domestic product (GDP) is expected to reach 10.8% at the end of 2026 [ 61 ]. Representing more than just economic strength, these figures exemplify the vast potential of tourism, to address some of the world´s most pressing challenges, including socio-economic growth and inclusive development.

Developing countries are emerging as the important players, and increasingly aware of their economic potential. Once essentially excluded from the tourism industry, the developing world has now become its major growth area. These countries majorly rely on tourism for their foreign exchange reserves. For the world’s forty poorest countries, tourism is the second-most important source of foreign exchange after oil [ 37 ].

The BRICS (Brazil, Russia, India, China and South Africa) countries have emerged as a potential bloc in the developing countries which caters the major tourists from developed countries. Tourism becomes major focus at BRICS Xiamen Summit 2017 held in China. These countries have robust growth rate, and are focal destinations for global tourists. During 1990 to 2014, these countries stride from 11% of the world’s GDP to almost 30% [ 17 ]. Among BRICS countries, China is ranked as an important destination followed by Brazil, Russia, India and South Africa [ 60 ].

The importance of inbound tourism has grown exponentially, because of its growing contribution to the economic growth in the long run. It enhances economic growth by augmenting the foreign exchange reserves [ 38 ], stimulating investments in new infrastructure, human capital and increases competition [ 9 ], promoting industrial development [ 34 ], creates jobs and hence to increase income [ 34 ], inbound tourism also generates positive externalities [ 1 , 14 ] and finally, as economy grows, one can argue that growth in GDP could lead to further increase in international tourism [ 11 ].

The tourism-led growth hypothesis (TLGH) proposed by Balaguer and Cantavella-Jorda [ 3 ], states that expansion of international tourism activities exerts economic growth, hence offering a theoretical and empirical link between inbound tourism and economic growth. Theoretically, the TLGH was directly derived from the export-led growth hypothesis (ELGH) that postulates that economic growth can be generated not only by increasing the amount of labor and capital within the economy, but also by expanding exports.

The ‘new growth theory,’ developed by Balassa [ 4 ], suggests that export expansion can trigger economic growth, because it promotes specialization and raises factors productivity by increasing competition, creating positive externalities by advancing the dispersal of specialized information and abilities. Exports also enhance economic growth by increasing the level of investment. International tourism is considered as a non-standard type of export, as it indicates a source of receipts and consumption in situ. Given the difficulties in measuring tourism activity, the economic literature tends to focus on primary and manufactured product exports, hence neglecting this economic sector. Analogous to the ELGH, the TLGH analyses the possible temporal relationship between tourism and economic growth, both in the short and long run. The question is whether tourism activity leads to economic growth or, alternatively, economic expansion drives tourism growth, or indeed a bi-directional relationship exists between the two variables.

To further substantiate the nexus, the study will investigate the plausible linkages between economic growth and international tourism while considering the relative importance of financial development in the context of BRICS nations. Financial markets are considered a key factor in producing strong economic growth, because they contribute to economic efficiency by diverting financial funds from unproductive to productive uses. The origin of this role of financial development may is traced back to the seminal work of Schumpeter [ 50 ]. In his study, Schumpeter points out that the banking system is the crucial factor for economic growth due to its role in the allocation of savings, the encouragement of innovation, and the funding of productive investments. Early works, such as Goldsmith [ 18 ], McKinnon [ 39 ] and Shaw [ 51 ] put forward considerable evidence that financial development enhances growth performance of countries. The importance of financial development in BRICS economies is reflected by the establishment of the ‘New Development Bank’ aimed at financing infrastructure and sustainable development projects in these and other developing countries. To the best of the authors’ knowledge, no attempt has been made so far to investigate the long-run relationship Footnote 1 between tourism, financial development and economic growth in case of BRICS countries. Hence, the present study is an attempt to fill the gap in the existing literature.

Review of past studies

From last few decades there has been a surge in the research related to tourism-growth nexus. The importance of growth and development and its determinants has been studied extensively both in developed and developing countries. Extant literature has recognized tourism as an important determinant of economic growth. The importance of tourism has grown exponentially, courtesy to its manifold advantages in form of employment, foreign exchange production household income and government revenues through multiplier effects, improvements in the balance of payments and growth in the number of tourism-promoted government policies [ 21 , 41 , 53 ]. Empirical findings on tourism and economic development have produced mixed finding and sometimes conflicting results despite the common choice of time series techniques as a research methodology. On empirical grounds, four hypotheses have been explored to determine the link between tourism and economic growth [ 12 ]. The first two hypotheses present an account on the unidirectional causality between the two variables, either from tourism to economic growth (Tourism-led economic growth hypothesis-TLGH) or its reserve (economic-driven tourism growth hypothesis-EDTH). The other two hypotheses support the existence of bi-directional hypothesis, (bi-directional causality hypothesis-BC) or that there is no relationship at all (no causality hypothesis-NC), respectively. According to TLEG hypothesis, tourism creates an array of benefits which spillover though multiple routes to promote the economic growth [ 55 ]. In particular, it is believed that tourism (1) increases foreign exchange earnings, which in turn can be used to finance imports [ 38 ], (2) it encourages investment and drives local firms toward greater efficiency due to the increased competition [ 3 , 31 ], (3) it alleviates unemployment, since tourism activities are heavily based on human capital [ 10 ] and (4) it leads to positive economies of scale thus, decreasing production costs for local businesses [ 1 , 14 ]. Other recent studies which find evidence in favor of the TLGH hypothesis include [ 44 , 52 ]. Even though literature is dominated by TLGH, few studies produce a result in support of EDTH [ 40 , 41 , 45 ]. Payne and Mervar [ 45 ] posit that tourism growth of a country is mobilized by the stability of well-designed economic policies, governance structures and investments in both physical and human capital. This positive and vibrant environment creates a series of development activities which proliferate and flourish the tourism. Pertaining to the readily available information, bi-directional causality could also exist between tourism income and economic growth [ 34 , 49 ]. From a policy view, a reciprocal tourism–economic growth relationship implies that government agendas should cater for promoting both areas simultaneously. Finally, there are some studies that do not offer support to any of the aforementioned hypotheses, suggesting that the impact between tourism and economic growth is insignificant [ 25 , 47 , 57 ]. There is a vast literature examining the relationship between tourism and growth as a result, only a selective literature review will be presented here.

Banday and Ismail [ 5 ] used ARDL cointegration model to test the relationship between tourism revenue and economic growth in BRICS countries from the time period of (1995–2013). The study validates the tourism-led growth hypothesis for BRICS countries, which evinces that tourism has positive influence on economic growth.

Savaş et al. [ 54 ] evaluated the tourism-led growth hypothesis in the context of Turkey. The study employed gross domestic product, real exchange rate, real total expenditure and international tourism arrivals to sketch out the causality among variables. The result reveals a unidirectional relationship between tourism and real exchange rate. The findings suggest that tourism is the driving force for economic growth, which in turn helps turkey to culminate its current account deficit.

Dhungel [ 15 ] made an effort to investigate causality between tourism and economic growth, In Nepal for the period of (1974–2012), by using Johansen’s cointegration and Error correction model. The result states that unidirectional causality exists in the long run, while in short run no causality exists between two constructs. The study emphasized that strategies should be devised to attain causality running from tourism to economic growth.

Mallick et al. [ 36 ] analyzed the nexus between economic growth and tourism in 23 Indian states over a period of 14 years (1997–2011). Using panel autoregressive distributed lag model based on three alternative estimators such as mean group estimator, pooled mean group and dynamic fixed effects, Research found that tourism exerts positive influence on economic growth in the long run.

Belloumi [ 8 ] examines the causal relationship between international tourism receipts and economic growth in Tunisia by using annual time series data for the period 1970–2007. The study uses the Johansen’s cointegration methodology to analyze the long-run relationship among the concerned variables. Granger causality based Vector error correction mechanism approach indicates that the revenues generated from tourism have a positive impact on economic growth of Tunisia. Thus, the study supports the hypothesis of tourism-driven economic growth, which is specific to developing countries that base their foreign exchange earnings on the existence of a comparative advantage in certain sectors of the economy.

Tang et al. [ 58 ] explored the dynamic Inter-relationships among tourism, economic growth and energy consumption in India for the period 1971–2012. The study employed Bounds testing approach to cointegration and generalized variance decomposition methods to analyze the relationship. The bounds testing and the Gregory-Hansen test for cointegration with structural breaks consistently reveals that energy consumption, tourism and economic growth in India are cointegrated. The study demonstrated that tourism and economic growth have positive impact on energy consumption, while tourism and economic growth are interrelated; with tourism exert significant influence on economic growth. Consequently, this study validates the tourism-led growth hypothesis in the Indian context.

Kadir and Karim [ 24 ]) examined the causal nexus between tourism and economic growth in Malaysia by applying panel time series approach for the period 1998–2005. By applying Padroni’s panel cointegration test and panel Granger causality test, the result indicated both short and long-run relationship. Further, the panel causality shows unidirectional causality directing from tourism receipts to economic growth. The result provides evidence of the significant contribution of tourism industry to Malaysia’s economic growth, thereby justifying the necessity of public intervention in providing tourism infrastructure and facilities.

Antonakakis et al. [ 2 ] test the linkage between tourism and economic growth in Europe by using a newly introduced spillover index approach. Based on monthly data for 10 European countries over the period 1995–2012, the findings suggested that the tourism–economic growth relationship is not stable over time in terms of both magnitude and direction, indicating that the tourism-led economic growth (TLEG) and the economic-driven tourism growth (EDTG) hypotheses are time-dependent. Thus, the findings of the study suggest that the same country can experience tourism-led economic growth or economic-driven tourism growth at different economic events.

Oh [ 41 ] verifies the contribution of tourism development to economic growth in the Korean economy by applying Engle and Granger two-stage approach and a bivariate Vector Autoregression model. He claimed that economic expansion lures tourists in the short run only, while there is no such long-run stable relationship between international tourism and economic development in Korea.

Empirical studies have pronouncedly focused on the literature that tourism promotes economic growth. To further substantiate the nexus, the study will investigate the plausible linkages between economic growth and international tourism while considering the relative importance of financial development in the context of BRICS nations. The inclusion of financial development in the examination of tourism-growth nexus is a unique feature of this study, which have an influencing role in economic growth as financial development has been theoretically and empirically recognized as source of comparative advantage [ 22 ].

This study employs panel ARDL cointegration approach to verify the existence of long-run association among the variables. Further, study estimated the long-run and short-run coefficients of the ARDL model. Subsequently, Dumitrescu and Hurlin [ 16 ] panel Granger causality test has been employed to check the direction of causality between tourism, financial development and economic growth among BRICS countries.

Database and methodology

Data and variables.

The study is analytical and empirical in nature, which intends to establish the relationship between economic growth and inbound tourism in BRICS countries. For the BRICS countries, limited studies have been conducted depicting the present scenario. Therefore, present study tries to verify the relevance of tourism in economic growth to further enhance the understanding of economic dynamics in BRICS countries. The data used in the study are annual figures for the period stretching from 1995 to 2015, consisting of one endogenous variable (GDP per capita, a proxy for economic growth) and two exogenous variables (international tourism receipts per capita and financial development). The variables employed in the study are based on the economic growth theory, proposed by Balassa [ 4 ], which states that export expansion has a relevant contribution in economic growth. Further, this study incorporates financial development in the model to reduce model misspecification as it is considered to have an influencing role in economic growth both theoretically and empirically [ 22 , 33 ].

The annual data for all the variables have been collected from the World Development Indicators (WDI, 2016) database. The variables used in the study includes gross domestic product per capita (GDP) in constant ($US2010) used as a proxy for economic growth (EG), international tourism receipts per capita (TR) in current US$ as it is widely accepted that the most adequate proxy of inbound tourism in a country is tourism expenditure normally expressed in terms of tourism receipts [ 32 ] and financial development (FD). In line with a recent study on the relationship between financial development and economic growth by Hassan et al. [ 19 ], financial development is surrogated by the ratio of the broad money (M3) to real GDP for all BRICS countries. Here we use the broadest definition of money (M3) as a proportion of GDP– to measure the liquid liabilities of the banking system in the economy. We use M3 as a financial depth indicator, because monetary aggregates, such as M2 or M1, may be a poor proxy in economies with underdeveloped financial systems, because they ‘are more related to the ability of the financial system to provide transaction services than to the ability to channel funds from savers to borrowers’ [ 26 ]. A higher liquidity ratio means higher intensity in the banking system. The assumption here is that the size of the financial sector is positively associated with financial services [ 29 ]. All the variables have been taken into log form.

Unit root test

To verify the long-run relationship between tourism and economic growth through Bounds testing approach, it is necessary to test for stationarity of the variables. The stationarity of all the variables can be assessed by different unit root tests. The study utilizes panel unit root test proposed by Levin et al. [ 35 ] henceforth LLC and Im et al. [ 23 ] henceforth IPS based on traditional augmented Dickey–Fuller (ADF) test. The LLC allows for heterogeneity of the intercepts across members of the panel under the null hypothesis of presence of unit root, while IPS allows for heterogeneity in intercepts as well as in the slope coefficients [ 48 ].

Panel ARDL approach to Cointegration

After checking the stationarity of the variables the study employs panel ARDL technique for Cointegration developed by Pesaran et al. [ 23 ]. Pesaran et al. [ 23 ] have introduced the pooled mean group (PMG) approach in the panel ARDL framework. According to Pesaran et al. [ 23 ], the homogeneity in the long-run relationship can be attributed to several factors such as arbitration condition, common technologies, or the institutional development which was covered by all groups. The panel ARDL bounds test [ 46 ] is more appropriate by comparing other cointegration techniques, because it is flexible regarding unit root properties of variables. This technique is more suitable when variables are integrated at different orders but not I (2). Haug [ 20 ] has argued that panel ARDL approach to cointegration provides better results for small sample data set such as in our case. The ARDL approach to cointegration estimates both long and short-run parameters and can be applied independently of variable order integration (independent of whether repressors are purely I (0), purely I(1) or combination of both. The ARDL bounds test approach used in this study is specified as follows:

where Δ is the first-difference operator, \(\alpha_{0}\) stands for constant, t is time element, \(\omega_{1} , \omega_{2} \;\;{\text{and}}\;\; \omega_{3}\) represent the short-run parameters of the model, \(\emptyset_{1} , \emptyset_{2} ,and \emptyset_{3}\) are long-run coefficients, while \(V_{it}\) is white noise error term and lastly, it represents country at a particular time period. In the ARDL model, the bounds test is applied to determine whether the variables are cointegrated or not.

This test is based on the joint significance of F -statistic and the χ 2 statistic of the Wald test. The null hypothesis of no cointegration among the variables under study is examined by testing the joint significance of the F -statistic of \(\omega_{1} , \omega_{2} ,\omega_{3}\) .

In case series variables are cointegrated, an error correction mechanism (ECM) can be developed as Eq. ( 2 ), to assess the short-run influence of international tourism and financial development on economic growth.

where ECT is the error correction term, and \(\varPhi\) is its coefficient which shows how fast the variables attain long-term equilibrium if there is any deviation in the short run. The error correction term further confirms the existence of a stable long-run relationship among the variables.

Panel granger causality test

To examine the direction of causality Dumitrescu and Hurlin [ 16 ] test is employed. Instead of pooled causality, Dumitrescu and Hurlin [ 16 ] proposed a causality based on the individual Wald statistic of Granger non-causality averaged across the cross section units. Dumitrescu and Hurlin [ 16 ] assert that traditional test allows for homogeneous analysis across all panel sets, thereby neglecting the specific causality across different units.

This approach allows heterogeneity in coefficients across cross section panels. The two statistics Wbar-statistics and Zbar-statistics provides standardized version of the statistics and is easier to compute. Wbar-statistic, takes an average of the test statistics, while the Zbar-statistic shows a standard (asymptotic) normal distribution.

They proposed an average Wald statistic that tests the null hypothesis of no causality in a panel subgroup against an alternative hypothesis of causality in at least one panel. Following equations will be used to check the direction of causality between the variables.

Estimation, results and Discussion

Descriptive statistics.

Table  1 presents descriptive statistics of variables selected for the period 1995–2015. The variable set includes GDP, FD and TR for all BRICS countries. Brazil tops the list with GDP per capita of 4.18, while India lagging behind all BRICS nations. In the recent economic survey by International Monetary Fund (IMF report 2016), India was ranked 126 for its per capita GDP. India’s GDP per capita went up to $7170 against all other BRICS countries which were placed in the above $10,000 bracket. China has the highest tourism receipts in comparison to other BRICS countries. China is a very popular country for foreign tourists, which ranks third after France and USA. In 2014, China invested $136.8 billion into its tourist infrastructure, a figure second only to the United States ($144.3 billion). Tourism, based on direct, indirect, and induced impact, accounted for near 10% in the GDP of China (WTTC report 2017).

Stationarity results

Primarily, we employed LLC and IPS unit root test to assess the integrated properties of the series. The results of IPS and PP tests are presented in Table  2 . Panel unit root test result evinces that FD and TR are stationary at level, while GDP per capita is integrated variable of order 1. The result exemplifies that GDP per capita, Tourism receipts and Financial Development are integrated at 1(0) and 1(1). Consequently, the panel ARDL approach to cointegration can be applied.

Cointegration test results

In view of the above results with a mixture of order integration, the panel ARDL approach to cointegration is the most appropriate technique to investigate whether there exists a long-run relationship among the variables [ 42 ]. Table  3 illustrates that the estimated value of F-statistics, which is higher than the lower and upper limit of the bound value, when InEG is used as a dependent variable. Hence, we reject the null hypothesis of no cointegration \(H_{0 } : \emptyset_{1} = \emptyset_{2} = \emptyset_{3} = 0\) of Eq. ( 1 ). Therefore, the result asserts that international tourism, financial development and economic growth are significantly cointegrated over the period (1995–2015).

Subsequently, the study investigates the long-run and short-run impact of international tourism and financial development on economic growth. Lag length is selected on the principle of minimum Bayesian information criterion (SBC) value, which is 2 in our case. The long-run coefficients of financial development and tourism receipts with respect to economic growth in Table  4 indicate that tourism growth and financial development exerts positive influence on economic growth in the long run. In other words, an increase in volume of tourism receipts per capita and financial depth spurs economic growth and both the coefficients are statistically significant in case of BRICS nations in the long run. The results are interpreted in detail as below:

The elasticity coefficient of economic growth with respect to tourism shows that 1% rise in international tourism receipts per capita would imply an estimated increase of almost 0.31% domestic real income in the long run, all else remaining the same. Thus, the earnings in the form of foreign exchange from international tourism affect growth performance of BRICS nations positively. This finding of our study is in consonance with the empirical results of Kreishan for Jordan [ 30 ], Balaguer and Cantavella-Jordá [ 3 ] for Spain and Ohlan [ 43 ] for India.

Further our finding lend support to the wide applicability of the new growth theory proposed by Balassa which states that export expansion promote growth performance of nations. Thus, validates TLGH coined by Balaguer and Cantavell-Jorda [ 3 ] which states that inbound tourism acts a long-run economic growth factor. The so called tourism-led growth hypothesis suggests that the development of a country’s tourism industry will eventually lead to higher economic growth and, by extension, further economic development via spillovers and other multiplier effects.

Likewise, financial development as expected is found to be positively associated with economic growth. The coefficient of financial development states that 1% improvement in financial development will push up economic growth by 0.22% in the long run, keeping all other variables constant. The empirical results are consistent with the finding of Hassan et al. [ 19 ] for a panel of South Asian countries. Well-regulated and properly functioning financial development enhances domestic production through savings, borrowings & investment activities and boosts economic growth. Further, it promotes economic growth by increasing efficiency [ 7 ]. Levine [ 33 ] believes that financial intermediaries enhance economic efficiency, and ultimately growth, by helping allocation of capital to its best use. Modern growth theory identifies two specific channels through which the financial sector might affect long-run growth; through its impact on capital accumulation and through its impact on the rate of technological progress. The sub-prime crisis which depressed the economic growth worldwide in 2007 further substantiates the growth-financial development nexus.

In the third and final step of the bounds testing procedure, we estimate short-run dynamics of variables by estimating an error correction model associated with long-run estimates. The empirical finding indicates that the coefficient of error correction term (ECT) with one period lag is negative as well as statistically significant. This finding further substantiates the earlier cointegration results between tourism, financial development and economic growth, and indicates the speed of adjustment from the short-run toward long-run equilibrium path. The coefficient of ECT reveals that the short-run divergences in economic growth from long-run equilibrium are adjusted by 43% every year following a short-run shock.

The short-run parameters in Table  5 demonstrates that tourism and financial development acts as an engine of economic growth in the short run as well. The coefficient of both tourism receipts per capita and financial development with one period lag is also found to be progressive and significant in the short run. These results highlight the role of earnings from international tourism and financial stability as an important driving force of economic growth in BRICS nations in the short run as well.

Further, a comparison between short-run and long-run elasticity coefficients evince that long-run responsiveness of economic growth with respect to tourism and financial development is higher than that of short run. It exemplifies that over time higher international tourism receipts and well-regulated financial system in BRICS nations give more boost to economic growth.

Analysis of causality

At this stage, we investigate the causality between tourism, financial development and economic growth presented in Table  6 . The result shows bi-directional causal relationship between tourism and economic growth, thereby validates ‘feedback hypothesis’ and consequently supported both the tourism-led growth hypothesis (TLGH) and its reciprocal, the economic-driven tourism growth hypothesis (EDTH). The bi-directional causality between inbound tourism and GDP, which directs the level of economic activity and tourism growth, mutually influences each other in that a high volume of tourism growth leads to a high level of economic development and reverse also holds true. These results replicate the findings of Banday and Ismail [ 5 ] in the context of BRICS countries, Yazdi et al. [ 27 ] for Iran and Kim et al. [ 28 ] for Taiwan. One of the channels through which tourism spurs economic growth is through the use of receipts earned in the form of foreign currency. Thus, growth in foreign earnings may allow the import of technologically advances goods that will favor economic growth and vice versa. Thus, results demonstrate that international tourism promotes growth and in turn economic expansion is necessary for tourism development in case of BRICS countries. With respect to policy context, this finding suggests that the BRICS nations should focus on economic policies to promote tourism as a potential source of economic growth which in turn will further promote tourism growth.

Similarly, in case of economic growth and financial development, the findings demonstrate the presence of bi-directional causality between two constructs. The findings validate thus both ‘demand following’ and supply leading’ hypothesis. The findings suggests that indeed financial development plays a crucial role in promoting economic activity and thus generating economic growth for these countries and reverse also holds. Our findings are in line with Pradhan [ 48 ] in case of BRICS countries and Hassan et al. [ 19 ] for low and middle-income countries. This suggests that finance development can be used as a policy variable to foster economic growth in the five BRICS countries and vice versa. The study emphasizes that the current economic policies should recognize the finance-growth nexus in BRICS in order to maintain sustainable economic development in the economy. The empirical results in this paper are in line with expectations, confirming that the emerging economies of the BRICS are benefiting from their finance sectors.

Finally, two-sided causal relationship is found between tourism receipts and financial development. That is, tourism might contribute to financial development and, in return, financial development may positively contribute to tourism. This means that financial depth and tourism in BRICS have a reinforcing interaction. The positive impact of tourism on financial development can be attributed to the fact that inflows of foreign exchange via international tourism not only increases income levels but also leads to rise in official reserves of central banks. This in turn enables central banks to adapt expansionary monetary policy. The positive contribution of financial sector to tourism is further characterized by supply leading hypothesis. Further, better financial and market conditions will attract tourism entrepreneurship, because firms will be able to use more capital instead of being forced to use leveraging [ 13 ]. Hence, any shocks in money supply could adversely affect tourism industry in these countries. Song and Lin [ 56 ] found that global financial crisis had a negative impact on both inbound and outbound tourism in Asia. This result is in consistent with Başarir and Çakir [ 6 ] for Turkey and four European countries.

Stability tests

In addition, to test the stability of parameters estimated and any structural break in the model CUSUM and CUSUMSQ tests are employed. Figs.  1 and 2 show blue line does not transcend red lines in both the tests, thus provides strong evidence that our estimated model is fit and valid policy implications can be drawn from the results.

Plot of CUSUM

Plot of CUSUMQ

Summary and concluding remarks

A rigorous study of the relationship between tourism and economic growth, through the tourism-led growth hypothesis (TLGH) perspective has remained a debatable issue in the economic growth literature. This study aims to empirically investigate the relationship between inbound tourism, financial development and economic growth in BRICS countries by utilizing the panel data over the period 1995–2015. The study employs the panel ARDL approach to cointegration and Dumitrescu-Hurlin panel Granger causality test to detect the direction of causation.

To the best of authors’ knowledge, this is the first study which explored the relationship between economic growth and tourism while considering the relative importance of financial development in the context of BRICS nations. The empirical results of ARDL model posits that in BRICS countries inbound tourism, financial development and economic growth are significantly cointegrated, i.e., variables have stable long-run relationship. This methodology has allowed obtaining elasticities of economic growth with respect to tourism and financial development both in the long run and short run. The result reveals that international tourism growth and financial development positively affects economic growth both in the long run and short run. The coefficient of tourism indicates that with a 1% rise in tourism receipts per capita, GDP per capita of BRICS economies will go up by 0.31% in the long run. This finding lends support to TLGH coined by Balaguer and Cantavell-Jorda [ 3 ] which states that inbound tourism acts a long-run economic growth factor. The so called tourism-led growth hypothesis suggests that the development of a country’s tourism industry will eventually lead to higher economic growth and, by extension, further economic development via spillovers and other multiplier effects.

Likewise, 1% improvement in financial development, on average, will increase economic growth in BRICS countries by 0.22% in the long run. The result seems logical as modern growth theory identifies two channels through which the financial sector might affect long-run growth: first, through its impact on capital accumulation and secondly, through its impact on the rate of technological progress. The sub-prime crisis which hit the economic growth Worldwide in 2007 further substantiates the growth-financial development nexus.

The negative and statistically significant coefficient of lagged error correction term (ECT) further substantiates the long-run equilibrium relationship among variables. The negative coefficient of ECT also shows the speed of adjustment toward long-run equilibrium is 43% per annum if there is any short-run deviation. The estimates of parameters are found to be stable by applying CUSUM and CUSUMQ for the time period under consideration. Therefore, inbound tourism earnings and financial institutions can be used as a channel to increase economic growth in BRICS economies.

Further, Granger causality test result indicates the bi-directional causation in all cases. Hence, the causal relationship between international tourism and economic growth is bi-directional. And, consequently this empirical finding lends support to both the tourism-led growth hypothesis (TLGH) and its reciprocal, the economic-driven tourism growth hypothesis (EDTH). This means that tourism is not only an engine for economic growth, but the economic outcome on itself can play an important role in providing growth potential to tourism sector.

The Granger causality findings provide useful information to governments to examine their economic policy, to adjust priorities regarding economic investment, and boost their economic growth with the given limited resources. Thus, it is suggested that more resources should be allocated to tourism industry and tourism-related industries if the tourism-led growth hypothesis holds true. On the other side, if economic-driven tourism growth is supported then more resources should be diverted to leading industries rather than the travel and tourism sector, and the tourism industry will in turn benefit from the resulting overall economic growth. And, when bi-directional causality is detected, a balanced allocation of economic resources for the travel and tourism sector and other industries is important and necessary. The policy implication is that resource allocation supporting both the tourism and tourism-related industries could benefit both tourism development and economic growth.

To sum up, the major finding of this study lends support to wide applicability of the tourism-led growth hypothesis in case of BRICS countries. Thus, in the Policy context, significant impact of tourism on BRICS economy rationalizes the need of encouraging tourism. Tourism can spur economic prosperity in these countries and for this reason; policymakers should give serious consideration toward encouraging tourism industry or inbound tourism. BRICS countries should focus more on tourism infrastructure, such as, convenient transportation, alluring destinations, suitable tax incentives, viable hostels and proper security arrangements to attract the potential tourists. Most of these countries are devoid of rich facilities and popular tourist incentives, to get promoted as important destination and in the long-run promotes economic growth. Further, they need a staunch support from all sections of authorities, non-government organizations (NGOs), and private and allied industries, in the endeavor to attain sustainable growth in tourism. Both state and non-state actors must recognize this growing industry and its positive implication on economy.

For future research, we suggest that researchers should consider the nonlinear factor in the dynamic relationship of tourism and economic growth in case of BRICS countries. Further one can go for comparative study to examine the TLGH in BRICS countries.

Availability of data and materials

Data used in the study can be provided by the corresponding author on request.

There are no fixed definitions of short, medium and long run and generally in macroeconomics, short run can be viewed as 1 to 2 or 3 years, medium up to 5 years and long run from 5 years to 20 or 25 years.

Abbreviations

autoregressive distributed lag model

Brazil, Russia, India, China and South-Africa

United Nations World Tourism Organization

World Travel & Tourism Council

gross domestic product

world development indicators

tourism-led growth hypothesis

export-led growth hypothesis

economic-driven tourism hypothesis

augmented Dickey–Fuller test

error correction model

error correction term

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Rasool, H., Maqbool, S. & Tarique, M. The relationship between tourism and economic growth among BRICS countries: a panel cointegration analysis. Futur Bus J 7 , 1 (2021). https://doi.org/10.1186/s43093-020-00048-3

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Modeling the link between tourism and economic development: evidence from homogeneous panels of countries

• Pablo Juan Cárdenas-García   ORCID: orcid.org/0000-0002-1779-392X 1 ,
• Juan Gabriel Brida 2 &
• Verónica Segarra 2  

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Having previously analyzed the relationship between tourism and economic growth from distinct perspectives, this paper attempts to fill the void existing in scientific research on the relationship between tourism and economic development, by analyzing the relationship between these variables using a sample of 123 countries between 1995 and 2019. The Dumistrescu and Hurlin adaptation of the Granger causality test was used. This study takes a critical look at causal analysis with heterogeneous panels, given the substantial differences found between the results of the causal analysis with the complete panel as compared to the analysis of homogeneous country groups, in terms of their dynamics of tourism specialization and economic development. On the one hand, a one-way causal relationship exists from tourism to development in countries having low levels of tourism specialization and development. On the other hand, a one-way causal relationship exists by which development contributes to tourism in countries with high levels of development and tourism specialization.

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Introduction.

Across the world, tourism is one of the most important sectors. It has undergone exponential growth since the mid-1900s and is currently experiencing growth rates that exceed those of other economic sectors (Yazdi, 2019 ).

Today, tourism is a major source of income for countries that specialize in this sector, generating 5.8% of the global GDP (5.8 billion US$) in 2021 (UNWTO, 2022 ) and providing 5.4% of all jobs (289 million) worldwide. Although its relevance is clear, tourism data have declined dramatically due to the recent impact of the Covid-19 health crisis. In 2019, prior to the pandemic (UNWTO, 2020 ), tourism represented 10.3% of the worldwide GDP (9.6 billion US$), with the number of tourism-related jobs reaching 10.2% of the global total (333 million). With the evolution of the pandemic and the regained trust of tourists across the globe, it is estimated that by 2022, approximately 80% of the pre-pandemic figures will be attained, with a full recovery being expected by 2024 (UNWTO, 2022 ).

Given the importance of this economic activity, many countries consider tourism to be a tool enabling economic growth (Corbet et al., 2019 ; Ohlan, 2017 ; Xia et al., 2021 ). Numerous works have analyzed the relationship between increased tourism and economic growth; and some systematic reviews have been carried out on this relationship (Brida et al., 2016 ; Ahmad et al., 2020 ), examining the main contributions over the first two decades of this century. These reviews have revealed evidence in this area: in some cases, it has been found that tourism contributes to economic growth while, in other cases, the economic cycle influences tourism expansion. Moreover, other works offer evidence of a bi-directional relationship between these variables.

Distinct international organizations (OECD, 2010 ; UNCTAD, 2011 ) have suggested that not only does tourism promote economic growth, it also contributes to socio-economic advances in the host regions. This may be the real importance of tourism, since the ultimate objective of any government is to improve a country’s socio-economic development (UNDP, 1990 ).

The development of economic and other policies related to the economic scope of tourism, in addition to promoting economic growth, are also intended to improve other non-economic factors such as education, safety, and health. Improvements in these factors lead to a better life for the host population (Lee, 2017 ; Todaro and Smith, 2020 ).

Given tourism’s capacity as an instrument of economic development (Cárdenas-García et al., 2015 ), distinct institutions such as the United Nations Conference on Trade and Development, the United Nations Economic Commission for Africa, the United Nations World Tourism Organization and the World Bank, have begun funding projects that consider tourism to be a tool for improved socio-economic development, especially in less advanced countries (Carrillo and Pulido, 2019 ).

This new trend within the scientific literature establishes, firstly, that tourism drives economic growth and, secondly, that thanks to this economic growth, the population’s economic conditions may be improved (Croes et al., 2021 ; Kubickova et al., 2017 ). However, to take advantage of the economic growth generated by tourism activity to boost economic development, specific policies should be developed. These policies should determine the initial conditions to be met by host countries committed to tourism as an instrument of economic development. These conditions include regulation, tax system, and infrastructure provision (Cárdenas-García and Pulido-Fernández, 2019 ; Lejárraga and Walkenhorst, 2013 ; Meyer and Meyer, 2016 ).

Therefore, it is necessary to differentiate between the analysis of the relationship between tourism and economic growth, whereby tourism boosts the economy of countries committed to tourism, traditionally measured through an increase in the Gross Domestic Product (Alcalá-Ordóñez et al., 2023 ; Brida et al., 2016 ), and the analysis of the relationship between tourism and economic development, which measures the effect of tourism on other factors (not only economic content but also inequality, education, and health) which, together with economic criteria, serve as the foundation to measure a population’s development (Todaro and Smith, 2020 ).

However, unlike the analysis of the relationship between tourism and economic growth, few empirical studies have examined tourism’s capacity as a tool for development (Bojanic and Lo, 2016 ; Cárdenas-García and Pulido-Fernández, 2019 ; Croes, 2012 ).

To help fill this gap in the literature analyzing the relationship between tourism and economic development, this work examines the contribution of tourism to economic development, given that the relationship between tourism and economic growth has been widely analyzed by the scientific literature. Moreover, given that the literature has demonstrated that tourism contributes to economic growth, this work aims to analyze whether it also contributes to economic development, considering development in the broadest possible sense by including economic and socioeconomic variables in the multi-dimensional concept (Wahyuningsih et al., 2020 ).

Therefore, based on the results of this work, it is possible to determine whether the commitment made by many international organizations and institutions in financing tourism projects designed to improve the host population’s socioeconomic conditions, especially in countries with lower development levels, has, in fact, resulted in improved development levels.

It also presents a critical view of causal analyses that rely on heterogeneous panels, examining whether the conclusions reached for a complete panel differ from those obtained when analyzing homogeneous groups within the panel. As seen in the literature review analyzing the relationship between tourism and economic development, empirical works using panel data from several countries tend to generalize the results obtained to the entire panel, without verifying whether, in fact, they are relevant for all of the analyzed countries or only some of the same. Therefore, this study takes an innovative approach by examining the panel countries separately, analyzing the homogeneous groups distinctly.

Therefore, this article presents an empirical analysis examining whether a causal relationship exists between tourism and economic development, with development being considered to be a multi-dimensional variable including a variety of factors, distinct from economic ones. Panel data from 123 countries during the 1995–2019 period was considered to examine the causal relationship between tourism and economic development. For this, the Granger causality test was performed, applying the adaptation of this test made by Dumistrescu and Hurlin. First, a causal analysis was performed collectively for all of the countries of the panel. Then, a specific analysis was performed for each of the homogeneous groups of countries identified within the panel, formed according to levels of tourism specialization and development.

This article provides information on tourism’s capacity to serve as an instrument of development, helping to fill the gap in scientific research in this area. It critically examines the use of causal analyses based on heterogeneous samples of countries. This work offers the following main novelties as compared to prior works on the same topic: firstly, it examines the relationship between tourism and economic development, while the majority of the existing works only analyze the relationship between tourism and economic growth; secondly, it analyzes a large sample of countries, representing all of the global geographic areas, whereas the literature has only considered works from specific countries or a limited number of nations linked to a specific country in a specific geographical area, and; thirdly, it analyzes the panel both individually and collectively, for each of the homogenous groups of countries identified, permitting the adoption of specific policies for each group of countries according to the identified relationship, as compared to the majority of works that only analyze the complete panel, generalizing these results for all countries in the sample.

Overall, the results suggest that a relationship exists between tourism and development in all of the analyzed countries from the sample. A specific analysis was performed for homogeneous country groups, only finding a causal relationship between tourism and development in certain country groups. This suggests that the use of heterogeneous country samples in causal analyses may give rise to inappropriate conclusions. This may be the case, for example, when finding causality for a broad panel of countries, although, in fact, only a limited number of panel units actually explain this causal relationship.

The remainder of the document is organized as follows: the next section offers a review of the few existing scientific works on the relationship between tourism and economic development; section three describes the data used and briefly explains the methodology carried out; section four details the results obtained from the empirical analysis; and finally, the conclusions section discusses the main implications of the work, also providing some recommendations for economic policy.

Tourism and economic development

Numerous organizations currently recognize the importance of tourism as an instrument of economic development. It was not until the late 20th century, however, when the United Nations World Tourism Organization (UNWTO), in its Manila Declaration, established that the development of international tourism may “help to eliminate the widening economic gap between developed and developing countries and ensure the steady acceleration of economic and social development and progress, in particular of the developing countries” (UNWTO, 1980 ).

From a theoretical point of view, tourism may be considered an effective activity for economic development. In fact, the theoretical foundations of many works are based on the relationship between tourism and development (Ashley et al., 2007 ; Bolwell and Weinz, 2011 ; Dieke, 2000 ; Sharpley and Telfer, 2015 ; Sindiga, 1999 ).

The link between tourism and economic development may arise from the increase in tourist activity, which promotes economic growth. As a result of this economic growth, policies may be developed to improve the resident population’s level of development (Alcalá-Ordóñez and Segarra, 2023 ).

Therefore, it is essential to identify the key variables permitting the measurement of the level of economic development and, therefore, those variables that serve as a basis for analyzing whether tourism results in improved the socioeconomic conditions of the host population (Croes et al., 2021 ). Since economic development refers not only to economic-based variables, but also to others such as inequality, education, or health (Todaro and Smith, 2020 ), when analyzing the economic development concept, it has been frequently linked to human development (Pulido-Fernández and Cárdenas-García, 2021 ). Thus, we wish to highlight the major advances resulting from the publication of the Human Development Index (HDI) when measuring economic development, since it defines development as a multidimensional variable that combines three dimensions: health, education, and income level (UNDP, 2023 ).

However, despite the importance that many organizations have given to tourism as an instrument of economic development, basing their work on the relationship between these variables, a wide gap continues to exist in the scientific literature for empirical studies that examine the existence of a relationship between tourism and economic development, with very few empirical analyses analyzing this relationship.

First, a group of studies has examined the causal relationship between tourism and economic development, using heterogeneous samples, and without previously grouping the subjects based on homogeneous characteristics. Croes ( 2012 ) analyzed the relationship between tourism and economic development, measured through the HDI, finding that a bidirectional relationship exists for the cases of Nicaragua and Costa Rica. Using annual data from 2001 to 2014, Meyer and Meyer ( 2016 ) performed a collective analysis of South African regions, determining that tourism contributes to economic development. For a panel of 63 countries worldwide, and once again relying on the HDI to define economic development, it was determined that tourism contributes to economic development. Kubickova et al. ( 2017 ), using annual data for the 1995–2007 period, analyzed Central America and Caribbean nations, determining the existence of this relationship by which tourism influences the level of economic development and that the level of development conditions the expansion of tourism. Another work examined nine micro-states of America, Europe, and Africa (Fahimi et al., 2018 ); and 21 European countries in which human capital was measured, as well as population density and tourism income, analyzing panel data and determining that tourism results in improved economic development. Finally, within this first group of works, Chattopadhyay et al. ( 2022 ), using a broad panel of destinations, (133 countries from all geographic areas of the globe) determined that there is no relationship between tourism and economic development.

Studies performed with large country samples that attempt to determine the causal relationship between tourism and economic development by analyzing countries that do not necessarily share homogeneous characteristics, may lead to erroneous conclusions, establishing causality (or not) for panel sets even when this situation is actually explained by a small number of panel units.

Second, another group of studies have analyzed the causal relationship between tourism and economic development, considering the previous limitation, and has grouped the subjects based on their homogeneous characteristics. Cárdenas-García et al. ( 2015 ) used annual data from 1990–2010, in a collective analysis of 144 countries, making a joint panel analysis and then examining two homogeneous groups of countries based on their level of economic development. They determined that tourism contributes to economic development, but only in the most developed group of countries. They determined that tourism contributes to economic development, both for the total sample and for the homogeneous groups analyzed. Pulido-Fernández and Cárdenas-García ( 2021 ), using annual data for the 1993–2017 period, performed a joint analysis of 143 countries, followed by a specific analysis for three groups of countries sharing homogeneous characteristics in terms of tourism growth and development level. They determined that tourism contributes to economic development and that development level conditions tourism growth in the most developed countries.

Finally, another group of studies has analyzed the causal relationship between tourism and economic development in specific cases examined on an individual basis. In a specific analysis by Aruba et al. ( 2016 ), it was determined that tourism contributes to human development. Analyzing Malaysia, Tan et al. ( 2019 ) determined that tourism contributes to development, but only over the short term, and that level of development does not influence tourism growth. Similar results were obtained by Boonyasana and Chinnakum ( 2020 ) in an analysis carried out in Thailand. In this case of Thailand (Boonyasana and Chinnakum, 2020 ), which relied on the HDI, the relationship with economic growth was also analyzed, finding that an increase in tourism resulted in improved economic development. Finally, Croes et al. ( 2021 ), in a specific analysis of Poland, determined that tourism does not contribute to development.

As seen from the analysis of the most relevant publications detailed in Table 1 , few empirical works have considered the relationship between tourism and economic development, in contrast to the numerous works from the scientific literature that have examined the relationship between tourism and economic growth. Most of the works that have empirically analyzed the relationship between tourism and economic development have determined that tourism positively influences the improved economic development in host destinations. To a lesser extent, some studies have found a bidirectional relationship between these variables (Croes, 2012 ; Kubickova et al., 2017 ; Pulido-Fernández and Cárdenas-García, 2021 ) while others have found no relationship between tourism and economic development (Chattopadhyay et al., 2022 ; Croes et al., 2021 ).

Furthermore, in empirical works relying on panel data, the results have tended to be generalized to the entire panel, suggesting that tourism improves economic development in all countries that are part of the panel. This has been the case in all of the examined works, with the exception of two studies that analyzed the panel separately (Cárdenas-García et al., 2015 ; Pulido-Fernández and Cárdenas-García, 2021 ).

Thus, it may be suggested that the use of very large country panels and, therefore, including very heterogeneous destinations, as was the case in the works of Biagi et al. ( 2017 ) using a panel of 63 countries, as well as that of Chattopadhyay et al. ( 2022 ) working with a panel of 133 countries, may lead to error, given that this relationship may only arise in certain destinations of the panel, although it is generalized to the entire panel.

This work serves to fill this gap in the literature by analyzing the panel both collectively and separately, for each of the homogenous groups of countries that have been previously identified.

The lack of relevant works on the relationship between tourism and development, and of studies using causal analyses to examine these variables based on heterogeneous panels, may lead to the creation of rash generalizations regarding the entirety of the analyzed countries. Thus, conclusions may be reached that are actually based on only specific panel units. Therefore, we believe that this study is justified.

Methodological approach

Given the objective of this study, to determine whether a causal relationship exists between tourism and socio-economic development, it is first necessary to identify the variables necessary to measure tourism activity and development level. Thus, the indicators are highly relevant, given that the choice of indicator may result in distinct results (Rosselló-Nadal and He, 2020 ; Song and Wu, 2021 ).

Table 2 details the measurement variables used in this work. Specifically, the following indicators have been used in this paper to measure tourism and economic development:

Measurement of tourist activity. In this work, we decided to consider tourism specialization, examining the number of international tourists received by a country with regard to its population size as the measurement variable.

This information on international tourists at a national level has been provided annually by the United Nations World Tourism Organization since 1995 (UNWTO, 2023 ). This variable has been relativized based on the country’s population, according to information provided by the World Bank on the residents of each country (WB, 2023 ).

Tourism specialization is considered to be the level of tourism activity, specifically, the arrival of tourists, relativized based on the resident population, which allows for comparisons to be made between countries. It accurately measures whether or not a country is specialized in this economic activity. If the variable is used in absolute values, for example, the United States receives more tourists than Malta, so based on this variable it may be that the first country is more touristic than the second. However, in reality, just the opposite happens, Malta is a country in which tourist activity is more important for its economy than it is in the United States, so the use of tourist specialization as a measurement variable classifies, correctly, both Malta as a country with high tourism specialization and to the United States as a country with low tourism specialization.

Therefore, most of the scientific literature establishes the need to use the total number of tourists relativized per capita, given that this allows for the determination of the level of tourism specialization of a tourism destination (Dritsakis, 2012 ; Tang and Abosedra, 2016 ); furthermore, this indicator has been used in works analyzing the relationship between tourism and economic development (for example, Biagi et al., 2017 ; Boonyasana and Chinnakum; 2020 ; Croes et al., 2021 ; Fahimi et al., 2018 ).

Although some works have used other variables to measure tourism, such as tourism income, exports, or tourist spending, these variables are not available for all of the countries making up the panel, so the sample would have been significantly reduced. Furthermore, the data available for these alternative variables do not come from homogeneous databases, and therefore cannot be compared.

Measurement of economic development. In this work, the Human Development Index has been used to measure development.

This information is provided by the United Nations Development Program, which has been publishing it annually at the country level since 1990 (UNDP, 2023 ).

The selection of this indicator to measure economic development is in line with other works that have defended its use to measure the impact on development level (for example, Jalil and Kamaruddin, 2018 ; Sajith and Malathi, 2020 ); this indicator has also been used in works analyzing the relationship between tourism and economic development (for example, Meyer and Meyer, 2016 ; Kubickova et al., 2017 ; Pulido-Fernández and Cárdenas-García, 2021 ).

Although some works have used other variables, such as poverty or inequality, to measure development, these variables are not available for all of the countries forming the panel. Therefore the sample would have been considerably reduced and the data available for these alternative variables do not come from homogenous databases, and therefore comparisons cannot be made.

These indicators are available for a total of 123 countries, across the globe. Thus, these countries form part of the sample analyzed in this study.

As for the time frame considered in this work, two main issues were relevant when determining this period: on the one hand, there is an initial time restriction for the analyzed series, given that information on the arrival of international tourists is only available as of 1995, the first year when this information was provided by the UNWTO. On the other hand, it was necessary to consider the effect of the Covid-19 pandemic and the resulting tourism sector crisis, which also affected the global economy as a whole. Therefore, our time series ended as of 2019, with the overall time frame including data from 1995 to 2019, a 25-year period.

Previous considerations

Caution should be taken when considering causality tests to determine the relationships between two variables, especially in cases in which large heterogeneous samples are used. This is due to the fact that generalized conclusions may be reached when, in fact, the causality is only produced by some of the subjects of the analyzed sample. This study is based on this premise. While heterogeneity in a sample is clearly a very relevant aspect, in some cases, it may lead to conclusions that are less than appropriate.

In this work, a collective causal analysis has been performed on all of the countries of the panel, which consists of 123 countries. However, given that it is a broad sample including countries having major differences in terms of size, region, development level, or tourism performance, the conclusions obtained from this analysis may lead to the generalization of certain conclusions for the entire sample set, when in fact, these relationships may only be the case for a very small portion of the sample. This has been the case in other works that have made generalized conclusions from relatively large samples in which the sample’s homogeneity regarding certain patterns was not previously verified (Badulescu et al., 2021 ; Ömer et al., 2018 ; Gedikli et al., 2022 ; Meyer and Meyer, 2016 ; Xia et al., 2021 ).

Therefore, after performing a collective analysis of the entire panel, the causal relationship between tourism and development was then determined for homogeneous groups of countries that share common patterns of tourism performance and economic development level, to analyze whether the generalized conclusions obtained in the previous section differ from those made for the individual groups. This was in line with strategies that have been used in other works that have grouped countries based on tourism performance (Min et al., 2016 ) or economic development level (Cárdenas-García et al., 2015 ), prior to engaging in causal analyses. To classify the countries into homogeneous groups based on tourism performance and development level, a previous work was used (Brida et al., 2023 ) which considered the same sample of 123 countries, relying on the same data to measure tourism and development level and the same time frame. This guarantees the coherence of the results obtained in this work.

From the entire panel of 123 countries, a total of six country groups were identified as having a similar dynamic of tourism and development, based on qualitative dynamic behavior. In addition, an “outlier” group of countries was found. These outlier countries do not fit into any of the groups (Brida et al., 2023 ). The three main groups of countries were considered, discarding three other groups due to their small size. Table 3 presents the group of countries sharing similar dynamics in terms of tourism performance and economic development level.

Applied methodology

As indicated above, this work uses the Tourist Specialization Rate (TIR) and the Human Development Index (HDI) to measure tourism and economic development, respectively. In both cases, we work with the natural logarithm (l.TIR and l.HDI) as well as the first differences between the variables (d.l.TIR and d.l.HDI), which measure the growth of these variables.

A complete panel of countries is used, consisting of 123 countries. The three main groups indicated in the previous section are also considered (the first of the groups contains 36 countries, the second contains 29 and the last group contains 43).

The Granger causality test ( 1969 ) is used to analyze the relationships between tourism specialization and development level; this test shows if one variable predicts the other, but this should not be confused with a cause-effect relationship.

In the context of panel data, different tests may be used to analyze causality. Most of these tests differ with regard to the assumptions of homogeneity of the panel unit coefficients. While the standard form of the Granger causality test for panels assumes that all of the coefficients are equal between the countries forming part of the panel, the Dumitrescu and Hurlin test (2012) considers that the coefficients are different between the countries forming part of the panel. Therefore, in this work, Granger’s causality is analyzed using the Dumitrescu and Hurlin test (2012). In this test, the null hypothesis is of no homogeneous causality; in other words, according to the null hypothesis, causality does not exist for any of the countries of the analyzed sample whereas, according to the alternative hypothesis, in which the regression model may be different in the distinct countries, causality is verified for at least some countries. The approach used by Dumitrescu and Hurlin ( 2012 ) is more flexible in its assumptions since although the coefficients of the regressions proposed in the tests are constant over time, the possibility that they may differ for each of the panel elements is accepted. This approach has more realistic assumptions, given that countries exhibit different behaviors. One relevant aspect of this type of tests is that they offer no information on which countries lead to the rejection of the lack of causality.

Given the specific characteristics of this type of tests, the presence of very heterogeneous samples may lead to inappropriate conclusions. For example, causality may be assumed for a panel of countries, when only a few of the panel’s units actually explain this relationship. Therefore, this analysis attempts to offer novel information on this issue, revealing that the conclusions obtained for the complete set of 123 countries are not necessarily the same as those obtained for each homogeneous group of countries when analyzed individually.

Given the nature of the variables considered in this work, specifically, regarding tourism, it is expected that a shock taking place in one country may be transmitted to other countries. Therefore, we first analyze the dependency between countries, since this may lead to biases (Pesaran, 2006 ). The Pesaran cross-sectional dependence test (2004) is used for the total sample and for each of the three groups individually.

First, a dependence analysis is performed for the countries of the sample, verifying the existence of dependence between the panel subjects. A cross-sectional dependence test (Pesaran, 2004 ) is used, first for the overall set of countries in the sample and second, for each of the groups of countries sharing homogeneous characteristics.

The results are presented in Table 4 , indicating that the test is statistically significant for the two variables, both for all of the countries in the sample and for each of the homogeneous country clusters, for the variables taken in logarithms as well as their first differences.

Upon rejecting the null hypothesis of non-cross-sectional dependence, it is assumed that a shock occurs in a country that may be transmitted to other countries in the sample. In fact, the lack of dependence between the variables, both tourism and development, is natural in this type of variables, given the economic cycle through the globalization of the economic activity, common regions visited by tourists, the spillover effect, etc.

Second, the stationary nature of the series is tested, given that cross-sectional dependence has been detected between the variables. First-generation tests may present certain biases in the rejection of the null hypothesis since first-generation unit root tests do not permit the inclusion of dependence between countries (Pesaran, 2007 ). On the other hand, second-generation tests permit the inclusion of dependence and heterogeneity. Therefore, for this analysis, the augmented IPS test (CIPS) proposed by Pesaran ( 2007 ) is used. This second-generation unit root test is the most appropriate for this case, given the cross-sectional dependence.

The results are presented in Table 5 , showing the statistics of the CIPS test for both the overall set of countries in the sample and in each of the homogeneous clusters of countries. The results are presented for models with 1, 2, and 3 delays, considering both the variables in the logarithm and their first differences.

As observed, the null hypothesis of unit root is not rejected for the variables in levels, but it is rejected for the first differences. This result is found in all of the cases, for both the total sample and for each of the homogeneous groups, with a significance of 1%. Therefore, the variables are stationary in their first differences, that is, the variables are integrated at order 1. Given that the causality test requires stationary variables, in this work it is used with the variation or growth rate of the variables, that is, the variable at t minus the variable at t−1.

Finally, to analyze Granger’s causality, the test by Dumitrescu and Hurlin ( 2012 ) is used. This test is used to analyze the causal relationship in both directions; that is, whether tourism contributes to economic development and whether the economic development level conditions tourism specialization. Statistics are calculated considering models with 1, 2, and 3 delays. Considering that cross-sectional dependence exists, the p-values are corrected using bootstrap techniques (making 500 replications). Given that the test requires stationary variables, primary differences of both variables were considered.

Table 6 presents the result of the Granger causality analysis using the Dumitrescu and Hurlin test (2012), considering the null hypothesis that tourism does not condition development level, either for all of the countries or for each homogeneous country cluster.

For the entire sample of countries, the results suggest that the null hypothesis of no causality from tourism to development was rejected when considering 3 delays (in other works analyzing the relationship between tourism and development, the null hypothesis was rejected with a similar level of delay: Rivera ( 2017 ) when considering 3–4 delays or Ulrich et al. ( 2018 ) when considering 3 delays). This suggests that for the entire panel, one-way causality exists whereby tourism influences economic development, demonstrating that tourism specialization contributes positively to improving the economic development of countries opting for tourism development. This is in line with the results of Meyer and Meyer ( 2016 ), Ridderstaat et al. ( 2016 ); Biagi et al. ( 2017 ); Fahimi et al. ( 2018 ); Tan et al. ( 2019 ), or Boonyasana and Chinnakum ( 2020 ).

However, the previous conclusion is very general, given that it is based on a very large sample of countries. Therefore, it may be erroneous to generalize that tourism is a tool for development. In fact, the results indicate that, when analyzing causality by homogeneous groups of countries, sharing similar dynamics in both tourism and development, the null hypothesis of no causality from tourism to development is only rejected for the group C countries, when considering three delays. Therefore, the development of generalized policies to expand tourism in order to improve the socioeconomic conditions of any destination type should consider that this relationship between tourism and economic development does not occur in all cases. Thus, it should first be determined if the countries opting for this activity have certain characteristics that will permit a positive relationship between said variables.

In other words, it may be a mistake to generalize that tourism contributes to economic development for all countries, even though a causal relationship exists for the entire panel. Instead, it should be understood that tourism permits an improvement in the level of development only in certain countries, in line with the results of Cárdenas-García et al. ( 2015 ) or Pulido-Fernández and Cárdenas-García ( 2021 ). In this specific work, this positive relationship between tourism and development only occurs in countries from group C, which are characterized by a low level of tourism specialization and a low level of development. Some works have found similar results for countries from group C. For example, Sharma et al. ( 2020 ) found the same relationship for India, while Nonthapot ( 2014 ) had similar findings for certain countries in Asia and the Pacific, which also made up group C. Some recent works have analyzed the relationship between tourism specialization and economic growth, finding similar results. This has been the case with Albaladejo et al. ( 2023 ), who found a relationship from tourism to economic growth only for countries where income is low, and the tourism sector is not yet developed.

These countries have certain limitations since even when tourism contributes to improved economic development, their low levels of tourism specialization do not allow them to reach adequate host population socioeconomic conditions. Therefore, investments in tourism are necessary there in order to increase tourism specialization levels. This increase in tourism may allow these countries to achieve development levels that are similar to other countries having better population conditions.

Therefore, in this group, consisting of 43 countries, a causal relationship exists, given that these countries are characterized by a low level of tourism specialization. However, the weakness of this activity, due to its low relevance in the country, prevents it from increasing the level of economic development. In these countries (details of these countries can be found in Table 3 , specifically, the countries included in Group C), policymakers have to develop policies to improve tourism infrastructure as a prior step to improving their levels of development.

On the other hand, in Table 7 , the results of Granger’s causal analysis based on the Dumitrescu and Hurlin test (2012) are presented, considering the null hypothesis that development level does not condition an increase in tourism, both in the overall sample set and in each of the homogeneous country clusters.

The results indicate that, for the entire country sample, the null hypothesis of no causality from development to tourism is not rejected, for any type of delay. This suggests that, for the entire panel, one-way causality does not exist, with level of development influencing the level of tourism specialization. This is in line with the results of Croes et al. ( 2021 ) in a specific analysis in Poland.

Once again, this conclusion is quite general, given that it has been based on a very broad sample of countries. Therefore, it may be erroneous to generalize that the development level does not condition tourism specialization. Past studies using a large panel of countries, such as the work of Chattopadhyay et al. ( 2022 ) analyzing panel data from 133 countries, have been generalized to all of the analyzed countries, suggesting that economic development level does not condition the arrival of tourists to the destination, although, in fact, this relationship may only exist in specific countries within the analyzed panel.

In fact, the results indicate that, when analyzing causality by homogeneous country groups sharing a similar dynamic, for both tourism and development, the null hypothesis of no causality from development to tourism is only rejected for country group A when considering 2–3 delays. Although the statistics of the test differ, when the sample’s time frame is small, as in this case, the Z-bar tilde statistic is more appropriate.

Thus, development level influences tourism growth in Group A countries, which are characterized by a high level of development and tourism specialization, in accordance with the prior results of Pulido-Fernández and Cárdenas-García ( 2021 ).

These results, suggesting that tourism is affected by economic development level, but only in the most developed countries, imply that the existence of better socioeconomic conditions in these countries, which tend to have better healthcare systems, infrastructures, levels of human resource training, and security, results in an increase in tourist arrivals to these countries. In fact, when traveling to a specific tourist destination, if this destination offers attractive factors and a higher level of economic development, an increase in tourist flows was fully expected.

In this group, consisting of 36 countries, the high development level, that is, the proper provision of socio-economic factors in their economic foundations (training, infrastructures, safety, health, etc.) has led to the attraction of a large number of tourists to their region, making their countries having high tourism specialization.

Although international organizations have recognized the importance of tourism as an instrument of economic development, based on the theoretical relationship between these two variables, few empirical studies have considered the consequences of the relationship between tourism and development.

Furthermore, some hasty generalizations have been made regarding the analysis of this relationship and the analysis of the relationship of tourism with other economic variables. Oftentimes, conclusions have been based on heterogeneous panels containing large numbers of subjects. This may lead to erroneous results interpretation, basing these results on the entire panel when, in fact, they only result from specific panel units.

Given this gap in the scientific literature, this work attempts to analyze the relationship between tourism and economic development, considering the panel data in a complete and separate manner for each of the previously identified country groups.

The results highlight the need to adopt economic policies that consider the uniqueness of each of the countries that use tourism as an instrument to improve their socioeconomic conditions, given that the results differ according to the specific characteristics of the analyzed country groups.

This work provides precise results regarding the need for policymakers to develop public policies to ensure that tourism contributes to the improvement of economic development, based on the category of the country using this economic activity to achieve greater levels of economic development.

Specifically, this work has determined that tourism contributes to economic development, but only in countries that previously had a lower level of tourism specialization and were less developed. This highlights the need to invest in tourism to attract more tourists to these countries to increase their economic development levels. Countries having major natural attraction resources or factors, such as the Dominican Republic, Egypt, India, Morocco, and Vietnam, need to improve their positioning in the international markets in order to attain a higher level of tourism specialization, which will lead to improved development levels.

Furthermore, the results of this study suggest that a greater past economic development level of a country will help attract more tourists to these countries, highlighting the need to invest in security, infrastructures, and health in order for these destinations to be considered attractive and increase tourist arrival. In fact, given their increased levels of development, countries such as Spain, Greece, Italy, Qatar, and Uruguay have become attractive to tourists, with soaring numbers of visitors and high levels of tourism specialization.

Therefore, the analysis of the relationship between tourism and economic development should focus on the differentiated treatment of countries in terms of their specific characteristics, since working with panel data with large samples and heterogenous characteristics may lead to incorrect results generalizations to all of the analyzed destinations, even though the obtained relationship in fact only takes place in certain countries of the sample.

Conclusions and policy implications

Within this context, the objective of this study is twofold: on the one hand, it aims to contribute to the lack of empirical works analyzing the causal relationship between tourism and economic development using Granger’s causality analysis for a broad sample of countries from across the globe. On the other hand, it critically examines the use of causality analysis in heterogeneous samples, by verifying that the results for the panel set differ from the results obtained when analyzing homogeneous groups in terms of tourism specialization and development level.

In fact, upon analyzing the causal relationship from tourism to development, and the causal relationship from development to tourism, the results from the entire panel, consisting of 123 countries, differ from those obtained when analyzing causality by homogeneous country groups, in terms of tourism specialization and economic development dynamics of these countries.

On the one hand, a one-way causality relationship is found to exist, whereby tourism influences economic development for the entire sample of countries, although this conclusion cannot be generalized, since this relationship is only explained by countries belonging to Group C (countries with low levels of tourism specialization and low development levels). This indicates that, although a causal relationship exists by which tourism contributes to economic development in these countries, the low level of tourism specialization does not permit growth to appropriate development levels.

The existence of a causal relationship whereby the increase in tourism precedes the improvement of economic development in this group of countries having a low level of tourism specialization and economic development, suggests the appropriateness of the focus by distinct international organizations, such as the United Nations Conference on Trade and Development or the United Nations Economic Commission for Africa, on funding tourism projects (through the provision of tourism infrastructure, the stimulation of tourism supply, or positioning in international markets) in countries with low economic development levels. This work has demonstrated that investment in tourism results in the attracting of a greater flow of tourists, which will contribute to improved economic development levels.

Therefore, both international organizations financing projects and public administrations in these countries should increase the funding of projects linked to tourism development, in order to increase the flow of tourism to these destinations. This, given that an increase in tourism specialization suggests an increased level of development due to the demonstrated existence of a one-way causal relationship from tourism to development in these countries, many of which form part of the group of so-called “least developed” countries. However, according to the results obtained in this work, this relationship is not instantaneous, but rather, a certain delay exists in order for economic development to improve as a result of the increase in tourism. Therefore, public managers must adopt a medium and long-term vision of tourism activity as an instrument of development, moving away from short-term policies seeking immediate results, since this link only occurs over a broad time horizon.

On the other hand, this study reveals that a one-way causal relationship does not exist, by which the level of development influences tourism specialization level for the entire sample of countries. However, this conclusion, once again, cannot be generalized given that in countries belonging to Group A (countries with a high development level and a high tourism specialization level), a high level of economic development determines a higher level of tourism specialization. This is because the socio-economic structure of these countries (infrastructures, training or education, health, safety, etc.) permits their shaping as attractive tourist destinations, thereby increasing the number of tourists visiting them.

Therefore, investments made by public administrations to improve these factors in other countries that currently do not display this causal relationship implies the creation of the necessary foundations to increase their tourism specialization and, therefore, as shown in other works, tourism growth will permit economic growth, with all of the associated benefits for these countries.

Therefore, to attract tourist flows, it is not only important for a country to have attractive factors or resources, but also to have an adequate level of prior development. In other words, the tourists should perceive an adequate level of security in the destination; they should be able to use different infrastructures such as roads, airports, or the Internet; and they should receive suitable services at the destination from personnel having an appropriate level of training. The most developed countries, which are the destinations having the greatest endowment of these resources, are the ones that currently receive the most tourist flows thanks to the existence of these factors.

Therefore, less developed countries that are committed to tourism as an instrument to improve economic development should first commit to the provision of these resources if they hope to increase tourist flows. If this increase in tourism takes place in these countries, their economic development levels have been demonstrated to improve. However, since these countries are characterized by low levels of resources, cooperation by organizations financing the necessary investments is key to providing them with these resources.

Thus, a critical perspective is necessary when considering the relationship between tourism and economic development based on global causal analysis using heterogeneous samples with numerous subjects. As in this case, carrying out analyses on homogeneous groups may offer interesting results for policymakers attempting to suitably manage population development improvements due to tourism growth and tourism increases resulting from higher development levels.

One limitation of this work is its national scope since evidence suggests that tourism is a regional and local activity. Therefore, it may be interesting to apply this same approach on a regional level, using previously identified homogeneous groups.

And given that the existence of a causal relationship (in either direction) between tourism and development has only been determined for a specific set of countries, future works could consider other country-specific factors that may determine this causal relationship, in addition to the dynamics of tourism specialization and development level.

Data availability

The datasets generated during and/or analyzed during the current study are available from the corresponding author upon reasonable request.

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7 ways to directly support the local economy.

• August 31, 2023

Supporting the local economy

Tourism can bring both positive and negative impacts to a destination. Whether tourism is considered good or sustainable, depends on how well these impacts are management. An important aspect of good tourism is the realisation of creating better places for people to live in and better places for people to visit.

One of the main benefits of tourism for a destination are the economic benefits. Tourism can bring a lot of income to a destination. Travellers spend money on accommodations , food, transportation, souvenirs and activities, creating jobs and supporting local businesses. This economic boost can contribute to infrastructure development, public services, and overall economic growth.

Beware of leakage

Don’t forget that local economic growth is only possible if money spent in the destination, actually stays in the destination. The concept ‘leakage’ refers to money leaving the tourism destination and ‘flowing back’ to other countries, rather than staying within the destination to benefit the local economy.

This can happen when travellers spend money and products and services provided by businesses that are not local to the destination. Leakage can occur in various ways, including:

• Imported goods such as French champagne or Dutch Gouda cheese
• Franchise operations such as McDonalds and Hilton Hotels
• Foreign-owned businesses where the investors and owners live abroad
• International travel companies that take a significant percentage of the travel fee

Leakage reduces the overall economic impact of tourism in a destination and limits the benefits that local businesses, communities and residents gain from the industry.

Measuring leakage

Leakage in tourism can be measured, although is extremely complex due to various factors and the need for accurate data collection. The goal is to quantify the amount of money leaving a destination’s economy through various channels and doesn’t contribute to the local economy directly.

The government plays an important role in tourism revenue distribution as they are in the position to collect relevant data, distinguish between local vs. non-local spending, calculate total tourism revenue and identify leakage factors.

7 tips to directly support the local economy

Luckily, there are also ways for you to truly support the local economy and provide travellers with an amazing travel experience! It comes down to the choices you make in promoting the destination, creating your itineraries and recommendations to your travellers. How are your customers going to spend their money?

In this article

• Hire local guides and drivers
• Book in locally owned accommodations
• Work with local communities
• Collaborate with local partners
• Buy local souvenirs
• Eat in local restaurants
• Donate to local projects

1. Hire local guides and drivers

The tourism industry is responsible for 1 in 11 jobs worldwide. One of the easiest ways to directly stimulate local employment in tourism is to hire local guides and drivers. Besides supporting the local economy, you’ll also add value to your travel experiences .

Locals are very familiar with their country, it’s history, people and culture. They are the connection between the destination and the traveller and in the position to turn the activity into an experience. Don’t forget to hire qualified and trained guides and drivers for quality, safety and reliability.

Want to learn more?

Read more about involving local guides in sustainable practices .

2. Book in locally owned accommodations

As mentioned before, booking with larger chain hotels will make your money leak back to international headquarters instead of staying in the destination. Directly support the local economy by booking locally owned accommodations.

Know that this does not only benefit the accommodation holder. It indirectly also benefits their local employees , their food providers and all other suppliers. Additionally, the traveller will have a better experience staying in an accommodation where they can learn more about the local culture.

3. Work with local communities

Community-based tourism is the perfect way to contribute to the local economy. The aim of community-based tourism is to directly benefit local communities financially, while travellers experience local way of life. The tourism experiences are hosted and managed by the communities themselves, which results in direct employment and ownership!

When done right, community-based tourism is the ultimate way of good tourism. It’s in the perfect position to create better lives for local communities, to preserve their culture and to offer travellers unique experiences.

Read more about our 7 tips to develop community-based tourism .

4. Collaborate with local partners

As a travel business, you are most likely working with a supply-chain in the destination. Partners that help you manage your travel experience, for example transport or activities. When selecting those partners, make sure to work with locals!

Thereby, make sure that you and your partner share the same values. This way you are able to guarantee your customers with a sustainable and unique experience. To offer customers the best possible service, you need to rely on partners that share your values, mindset and mission for sustainable tourism .

5. Buy local souvenirs

For most travellers, travelling is about making memories. Souvenirs are often bought to remind them of a specific travel experience. When buying souvenirs locally, you support the local handcrafters and their material providers.

Inform your travellers to buy souvenirs from local communities and instruct your guides to not take travellers to larger commercial shops. Thereby, make sure to explain about illegal souvenirs made from protected flora and fauna. For example, souvenirs made from poached ivory.

Read more about illegal souvenirs .

6. Eat in local restaurants

Eating and drinking in local restaurants and café’s directly benefits the local economy for the obvious reasons. It ensures the money stays in the destination and that the local owner and employees financially benefit. It also directly supports the local farmers and food producers in the area.

Besides supporting the local economy, eating locally is good for the environment. Local food doesn’t have to travel as far, so it reduces the CO2 emissions . Eating in a local restaurant is also a great experience for the traveller, who will be able to taste and explore the local cuisine.

7. Donate to local projects

Besides buying from and employing locals, you can also support the local economy by donating to local projects. You can choose to support a local project in every destination you offer and donate a fixed amount per traveller. Most travellers will want to contribute to a project in the destination they are visiting.

Donating doesn’t necessarily mean financially. You can also donate time or materials and the projects can be both social and environmental. Think about a local hospital, school or women empowerment center where you can contribute to. Or environmentally, you can support a wildlife sanctuary, a vegetable garden or tree planting project.

The local multiplier effect of tourism

If spent money stays in the destination, the economic benefits of tourism are boosted by the local multiplier effect. When money is spent locally you don’t only benefit the person you do business with. It recirculates in the economy:

Directly: By hiring local employees or purchasing local products Indirectly: By spending money at any local business Third party: When locals spend their tourism-owned money locally

How will you support the local economy?

As a travel business, you have the opportunity to decide where your money and that of your travellers ends up. By spending your money locally and with the right people, you make sure the destination directly benefits from tourism. You give locals the opportunity to do business, to be more independent and to stimulate economic growth. Support the movement of good tourism: better places to live in, and better places to visit.

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Hi, it is interesting to read posts like this. But, I wonder, are they ideas of yours, or there are some investigations or theory behind them?

I mean, I like the insights you are posting, but how do you come to those ideas?

I would love to get in contact and have a chance to cooperate.

Hi Anvar, thank you for your comment! The ideas are our own opinions and thoughts based on our work experience in the tourism industry. For inspiration, we read a lot of articles and academic papers. Please send us an email to get in contact with us!

Hello Anne, Thank you very much for your time contribution posting this. It helpful and locals love oriented.

So good to hear Kagabo!

Indeed , as a good tourism institute trainne ,the purpose to go through the course should be one that results into ‘better places to live in and better places to visit ‘ for both the locals and the visitors to our destinations

Absolutely Priscilla, that’s the goal. Good to see you’re so active on the platform!

Tthe way to go for all stakeholders ; ; as each one of us has a hand in tourism whether as a tour operatot ; tourism buyers and communities where we operate from

Anne de Jong

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• How Culture and Heritage Tourism Boosts More Than A Visitor Economy

by Carolyn Childs 37 Comments

Culture and heritage tourism plays a critical role in building the visitor economy and goes even beyond that. A recent survey showed that over 50% of respondents polled agreed that history and culture are strong influences on their choice of holiday destination. 

Culture and heritage tourism is a fast-growing and high-yielding sector

Statistics also indicate that culture and heritage tourism continues to grow rapidly, especially in OECD and APEC regions. We estimate the direct global value of culture and heritage tourism to be well over $1billion dollars, with that of the Asia Pacific region being approximately $327 million.

It is already directly responsible for more than 50 million jobs in APEC countries. And what’s more, the indirect benefits of culture and heritage tourism are thought to be of the order of $1 billion and account for further 75 million jobs across the region. 

There is no denying the fact that culture and heritage tourism tends to attract high-yield tourists. While global figures can be hard to obtain, all available statistics on tourism in various individual markets like the UK, New Zealand, Australia, India , etc. reveal a consistent pattern.

Culture and heritage tourists often stay longer and spend a lot more money in general than other tourists do. In fact, one study showed that a culture and heritage tourist spent as much as 38% higher per day and they stayed 22% longer overall compared to other kinds of travellers.

Taj Mahal, Indian Symbol

Although the statistical evidence doesn’t show consistency regarding repeat visitors, tourism data on United States’ Culture and Heritage visitors indicates that the level of repeat visitation amongst this group of travellers is higher than that of traditional tourists. 

It builds engagement

Culture and heritage tourists usually visit cultural heritage attractions such as historic buildings and other historic attractions; archaeological sites; state, local, or national parks; art galleries or museums; concerts, plays, or musicals; ethnic or ecological heritage sites; and such attractions. These travellers say that these trips are more memorable than conventional holiday trips since they allow them to learn something new.  This focus on learning skills and gain enrichment has been identified by Trendwatching as a core global trend in travel (and links to broader macro trends in consumer needs).

The benefits of culture and heritage tourism are amplified through the economy, so their impact is much wider than just the direct spending levels. As Simon Thurley of English Heritage has shown in his Heritage Cycle, heritage tourism has benefits that extend beyond the solely economic. 

What are the benefits of heritage tourism?

Generally, the benefits of heritage tourism can be categorized into three groups: economic, social, and environmental. As they tend to be the highest focus for destinations and policymakers we have focused on the economic benefits first

Economic Benefits of Cultural and Heritage Tourism

• Injects new money into the economy, boosting businesses and tax revenues 
• Creates new jobs, businesses, events, and attractions, thus helping diversify the local economy 
• Supports small businesses and enables them to expand 
• Promotes the active preservation and protection of important local resources 
• Builds vital relationships among and within local communities
• Helps encourage the development and maintenance of new/existing community amenities 

Social Benefits of Cultural and Heritage Tourism 

• Helps build social capital

• Promotes positive behaviour 
• Helps improve the community’s image and pride
• Promotes community beautification
• Builds opportunities for healthy and useful community relationships and partnerships
• Provides research, education, and work-placement opportunities for students
• Creates enjoyable opportunities for both local residents and visitors attracted to the cultural arts, history, and preservation
• Boosts local investment in heritage resources and amenities that support tourism services 

There is even evidence that helping to maintain buildings of character culture and heritage tourism can also contribute to the innovation and business diversification of precincts.  Small businesses based in amazing buildings are typically innovators and provide a core for other larger businesses.

Environmental Benefits of Cultural and Heritage Tourism 

• Helps encourage a culture of preservation
• Boost awareness of the tourist site, attraction, or area’s significance
• Helps encourage local residents and visitors to be mindful of their impact on the natural and built environment 

 Although there is a risk that this type of tourism can lead to a place being ‘loved to death (think the Taj Mahal or the Sistine Chapel ), properly handled it can provide a reason to invest in things like sewage and water resources in areas. 

So that is why we think Cultural and Heritage Tourism is vital to the visitor economy – and destinations should seek to maximise the opportunities it brings. In future articles, we will be delving more deeply into practical opportunities on how to do that. (If you are an MTR member then you can also access more detailed content via the Members Only HomePage .)

Looking for more Culture and Heritage tourism information? You can check out our blog about defining cultural and heritage tourism and cultural tourism opportunities .

Do you want to hear more from us? 

Want to be kept up to date with the latest travel and tourism insights? Join Our Mailing List. Every 2 weeks, we send the latest practical insight for you to apply to your business and destination marketing. 

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About Carolyn Childs

Carolyn has spent more than 25 years’ helping businesses achieve their goals by using research and other evidence to guide strategy and planning – mainly in the aviation, travel and tourism fields. She has worked in more than 35 countries on every inhabited continent and brings a detailed understanding of customers and how to connect with them. As well as running her own businesses, she has worked for organisations such as the International Air Transport Association, TNS (the world’s largest custom research company) and the Travel Research Centre.

November 28, 2023 at 7:58 am

Your blog, ‘How Culture and Heritage Tourism Boosts More Than A Visitor Economy,’ brilliantly unveils the multifaceted impact of cultural and heritage tourism. The depth of your analysis and compelling narrative style make this a must-read. It’s a commendable exploration of the broader positive influence that goes beyond economic aspects, showcasing the richness and importance of cultural exploration. Excellent work!

December 22, 2023 at 11:14 am

Thanks Kenny!

June 12, 2023 at 12:00 pm

What are the pros of heritage tourism?

June 12, 2023 at 12:40 pm

We try to outline these in the article but this type of tourism helps us preserve our vital cultural assets, gives communities pride and helps build economic opportunity. You can also find out more at the website of the World Tourism Association for Culture and Heritage and at that of ICOMOS .

Of course you have to do it right! This starts by the community understanding what they have, then deciding what they want to share finally finding visitors who want that.

One challenge is the concept of heritage has some negative connotations in that it can seem ‘fusty’ but by showcasing culture and immersion it becomes incredibly engaging. In our work with SHP we are working to overcome this.

Travellers say that they want to get under the skin of a destination – culture and heritage tourism does just that.

November 23, 2022 at 8:58 am

Hello. Thank you for the great blog today. Have a nice day 강남호빠

June 12, 2023 at 12:45 pm

Glad you liked it…

December 30, 2021 at 1:52 am

Thank you for this interesting piece. Can you clarify time frame for stats like this: “We estimate the direct global value of culture and heritage tourism to be well over $1billion dollars, with that of the Asia Pacific region being approximately $327 million.” Is this an annual figure? I am citing your work and want to be sure I am doing so accurately.

October 4, 2022 at 1:57 pm

Dolly it is an annual number. I think this number is now well exceeded though as this has been a huge growth area

October 12, 2021 at 7:49 pm

I would like to know on how can we able to preserve our cultural heritage so as we can ensure imcrease of coming tourists especially to the developing countries, since it has mostly be an obstacle to those nations.

November 29, 2021 at 2:38 pm

I think there is a need to engage your local community and to demonstrate the benefits to them, including opportunities for employment. Community is important as we also need to make sure that the way we promote it benefits the community.

One simple framewok I have seen in Canada is

1) work out what you have. What do you have to share. This doesn’t have to be buildings, intangible culture like cuisine and arts are important to. Audit what you have, collect your stories 2) Agree what you want to share. Agree what you want to share with visitors 3) work out what visitors want. Identify what demand there is for what you have to offer, what customers are interested? then find out about how they book and plan travel (lots of resources in our blog on this) then create a destination management plan (guidance on what to use can be found at https://www.austrade.gov.au/ArticleDocuments/5499/DM_Guide.pdf.aspx ) This will help you work out how and what to do

March 2, 2023 at 12:10 am

we are having different activities that we can do as our culture-heritage but due to financial constrain we get it difficult tp practices such kind of activities to promote our culture and also to act as tourism attraction for other continent .

June 12, 2023 at 12:34 pm

Not all culture and heritage activities have to cost a lot. Community-based tourism generally starts small scale and is built by the community asking what it can do rather. This could be simply opportunities for visitors to meet members of the local community or come for a meal at their homes. Talking to visitors already coming (if any) is a good place to start.

May 6, 2021 at 12:16 pm

Hi that is a question how heritage attractions make global marketing in order to attract more foreign tourists and enhance their popularities all over the world. Is it possible for the heritage attraction make efforts oversea? like participating in exhibition.

June 15, 2021 at 2:00 pm

Hi Cindy we definitely think attractions can promote overseas, but it depends on the attraction and whether it is likely to appeal to individual visitors. Our advice on promotion for an attraction is normally to do so in partnership with their host destination

October 27, 2021 at 6:15 pm

Hie We appreciate what you are doing. We are also trying to come up with a plan to establish a Cultural Heritage and Adventure tourism resort in our rural area in Hwedza. If you are ininterested in helping us please be intouch and will post to pictures of the magnificent sites we wish to show the world. Thank you in advance.

Best Regards Tsungai Maphosa

November 29, 2021 at 2:39 pm

Tsungai … will be in touch soon

April 9, 2021 at 7:55 pm

In which year you published it? I need it for my research paper

August 19, 2021 at 3:59 pm

April 2015… we review it each year and it still holds true and is our most read post!

January 25, 2021 at 5:39 pm

I have a question in what way how leisure helps the tourism industry?

I’m not sure I understand your question. Can you explain a bit more

December 4, 2020 at 5:15 am

I have a question, How to use tourism culture element to attract tourists ?

April 22, 2021 at 11:01 am

It was updated in 2020 but initially published on Apri 18, 2015. We revisit it reqgularly and it still holds true

September 14, 2020 at 8:57 pm

Culture or heritage consumption requires understanding how tourist’ emotions and reasons interacting in experiencing these products to ensure long-term sustainability?

October 12, 2020 at 10:33 am

It does indeed. It also means encouraging the right tourists.

September 13, 2020 at 12:52 am

I have a question explain the economic benefits, social benefits and environmental benefits of heritage tourism. Specify specific examples /situation

October 12, 2020 at 10:31 am

This could honestly be a whole text book Natalia! The three are highly linked as in what brings money in gets valued and what is valued is protected. It is called the heritage cycle. The UK Lottery fund has a report on the value of conserving and adapting heritage buildings that shows they bring in GDP.

August 17, 2020 at 11:50 pm

What are the possible objects of cultural interest that may entice or impact tourist arrivals?

October 12, 2020 at 10:29 am

Krister… the process is a three step one. Identify what you have, Agree with the community what can be shared, identify if there are enough visitors who might be interested and who they are? There isn’t a one size fits all on this.

February 4, 2020 at 11:34 pm

In your own words what are the advantages of heritage tourism and what are the disadvantages or challenges of heritage tourism?

March 3, 2020 at 5:57 pm

Mark Great question. I don’t see any disadvantages if it is managed well. The challenges come when it isn’t developed with local buy on, people fail to plan for tourism and culture together and where you don’t let the story lead. The advantages are almost too numerous to mention: social capital, civic pride, economic benefit, a clear case for protecting assets.

January 19, 2020 at 11:22 am

I have a question how does cultural heritage promotes tourism?

January 24, 2020 at 11:12 am

Cultural heritage provides a compelling reason to visit. As more people have the ability to travel we see that the desire to understand other cultures grows. Cultural heritage often includes compelling human stories and provokes a sense of wonder. Who hasn’t stood in front of the pyramids and ‘gone wow!’?

There is strong supporting evidence. Research on the impact of gaining World Heritage status indicates that it boosts visitation. It’s a way of curating the ‘best of’ that anyone can understand.

July 4, 2019 at 12:37 am

Now, that’s a great question. All places are heritage destinations since all of them have their histories. However, some places are more historically significant than others. In that sense, all travel can be classified as heritage travel.

Attractions can be either heritage attractions or otherwise. In other words, non-heritage attractions like scenery, national parks, nightclubs, safaris, adventure are also reasons why people travel. In this case, heritage has no place.

I would like to ask one question of my own: How important do you think it is for travelers going to heritage destinations, to be acquainted with the history of the place?

September 11, 2019 at 2:18 pm

I am not sure we could police that. Maybe more like encourage it but great interpretation on site can do the same job

December 6, 2018 at 4:47 am

I have a great question if you can answer the question by my email address Does tourism exist without heritage or attraction? if you say yes how? if you say no how?

September 11, 2019 at 2:21 pm

It depends what you mean by an attraction … many holidays are about relaxation. They may include sightseeing, but the classic ‘fly and flop’ holiday is still tourism. We now know that even this type of holiday can help with mental and physical health

September 21, 2019 at 5:40 pm

YES you are absolutely right that tourism has a lot of advantage for health. Tourism is one which bring happiness in our life and enjoy Full moments. even through it we feel something fresh and new observation.

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How big is tourism to Brevard County? $4.6 billion in economic impact, 38,000 jobs

A new study indicates that tourism pumps about $4.6 billion a year into the Space Coast's economy through such things as visitor spending and tourism industry employee wages.

Space Coast Office of Tourism Executive Director Peter Cranis said it's a big jump from pre-COVID-19 numbers, and reflects the strength of the industry. The numbers also reflect increased prices for such things as lodging and restaurant meals since then.

The data comes from a survey of about 2,500 visitors to Brevard County, which is the most comprehensive survey of its kind in recent years, Cranis said.

Here are some of the details of the survey and related data:

How much did visitors to the Space Coast spend?

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Visitor spending was $2.95 billion in 2023, with overnight visitors accounted for nearly 3 million nights of rentals at hotels, motels, vacation rental and other accommodations.

On average, each travel party spends $2,762, which is $197 per person per day, or $891 per person per trip.

What are visitors spending their money on while here?

On average, about 25% goes to dining and beverages; 22% to recreation and entertainment; 20% to shopping; and 17% to lodging; with the remainder going gas, local transportation and other services.

Visitors stay here an average of 4.5 nights and are in travel parties averaging 3.1 people.

How many jobs does tourism create?

The tourism industry on the Space Coast supports nearly 46,000 direct and spinoff jobs, with wages of nearly $1.5 billion a year. Tourism is the area's fourth-largest employer, behind health, retail and manufacturing.

Where are visitors coming from?

About 37% come from within Florida; 17% from other states in the Southeast; 17% from the Midwest; 12% from the Northeast; 12% from the West; and 5% from international markets, mostly Canada, the United Kingdom and Germany.

What were the top out-of-state markets for visitors?

Visitors from the New York City area ranked No. 1, followed by Atlanta, Washington, Philadelphia, Boston, Minneapolis-St. Paul, Chicago, Detroit, Charlotte and Indianapolis.

What are the demographics of visitors?

Visitors have a household income averaging $97,000 a year. Their median age is 46, and about 47% have children in their travel party.

Cranis said the Office of Tourism is trying to aim its marketing campaigns toward relatively affluent households, because "they're going to spend more money and stay longer when they come here."

What do visitors to the Space Coast do when they are here?

Lots of things. While here, many engage in beach activities (68%); go shopping (61%); go sightseeing (48%); watch a rocket launch (41%); do some kind of outdoor activity like hiking, biking or bird-watching (40%); go to the Kennedy Space Center Visitor Complex (29%); take a multiday cruise (25%); or participate in watersports like surfing, boating, kayaking or water-skiing (22%).

Other things some tourists do are going to a museum, going to the Brevard Zoo , fishing, playing golf, playing in a sporting event or attending a business activity.

Where are they staying?

About 36% stay in a hotel or motel; 28% stay with friends or family; and 26% stay in a vacation rental. Some stay at a bed-and-breakfast, a recreational-vehicle park or a campground.

What are some economic trends for local hotels?

Cranis said average room prices in Brevard County generally have been rising from $110 to $120 a night several years ago to $150 or more now.

He expects the average room price to increase even more when the upscale, 502-room, six-story Westin Cocoa Beach Resort & Spa opens in 2027. It will be built on the site of the former 502-room, two-story International Palms Resort, which has been demolished to make way for the Westin. 

Cranis expects room rates at the Westin will be $400 or more a night, which also is likely to lead to a boost of rates at other hotels in the Cocoa Beach area.

Additionally, Cranis said the room occupancy levels at local hotels have been trending higher over the last few years.

What was the primary reason for people visit the Space Coast?

About 60% came for a vacation; 32% to visit family or friends; and 5% for business.

What was a big surprise of the study?

Cranis said he was surprised that a majority (54%) flew into the area, versus drive in (46%). He said the Space Coast in the past was largely considered a drive-to tourism destination.

What about cruise passengers?

Another surprise for Cranis was how many people who took cruises out of Port Canaveral stayed in the area overnight, either before or after their cruise. That figure was 91%, including 27% who said they stayed both before and after.

He said an Office of Tourism promotional campaign targeted at cruise passengers likely helped boost those numbers.

What are some other characteristics of cruise passengers?

The study found that, compared with other tourists, cruise passengers who stayed on the Space Coast before or after their cruise are younger, wealthier and spend more per person per day. For cruise passengers, the average travel party is 3.6 people; the average age is 38; the average household income is $115,000; and per-party spending is $3,072.

What are some pluses of tourism for local residents who are not in the tourism industry?

Tourists pay about 30% of sales tax and 20% of gas tax that is collected on the Space Coast. If tourism did not exist, it is estimated that each Florida household would have to spend an additional $1,840 in taxes to maintain the current state and local tax revenues. Cranis said tourism is cited by some as a contributing factor for Florida not having a state income tax.

How much is collected locally in the tourist tax?

For the 2022-23 budget year that ended Sept. 30, about $25.54 million was collected through Brevard County's 5% tourist development tax on hotel and motel rooms, vacation rentals and short-term rentals. In the current 2023-24 budget year, Cranis expects that figure will increase to somewhere between $26 million and $27 million.

The money is used to market the area to tourists, for beach renourishment and for projects at the Brevard Zoo, as well as for grants to support tourism capital projects, sports events, and arts and cultural organizations and events.

Dave Berman is business editor at  FLORIDA TODAY.  Contact Berman at  [email protected] , on X at  @bydaveberman  and on Facebook at  www.facebook.com/dave.berman.54

The Impact of Tourism on Local Real Estate Markets

T ourism is more than just an opportunity for travelers to explore new destinations; it's a powerful economic force that significantly influences local real estate markets. As tourists arrive in new areas, their presence can catalyze changes in both residential and commercial property sectors. This influence creates a ripple effect that can alter the economic landscape of the entire community. 

Rising Property Values

The immediate effect of increased tourism is often seen in property values. Mike Kotler, Founder of Move Ahead Homes and an active realtor, observes, "Tourism directly boosts demand for local real estate as visitors often seek second homes or investment properties in popular tourist destinations. This increased demand drives up property values, providing substantial benefits to local homeowners." The development associated with tourism, such as enhanced infrastructure and improved amenities, further increases property attractiveness and value.

Property developers are quick to capitalize on this trend, often accelerating their projects to match the growing demand. This development can lead to a robust construction industry, further stimulating the local economy through job creation and increased spending. 

Impact on Rental Markets

The influx of tourists also transforms rental markets. Noah Guthart, Founder and COO of Panacrypto , points out, "Areas with high tourist attractions experience a surge in demand for short-term rentals. While this is lucrative for property investors, it also poses challenges for locals seeking long-term housing solutions." He explains that as more residential units are converted into vacation rentals, the availability of affordable long-term rentals diminishes, sometimes straining local housing markets.

This shift not only affects availability but can also alter the community dynamic, as transient populations replace longer-term residents. Local governments are often prompted to intervene, creating policies to balance the needs of tourists and residents to maintain community stability and quality of life. 

Economic Impact Beyond Real Estate

The influence of tourism extends far beyond real estate. Pradeep Guragain from Magical Nepal highlights the broader economic impact: "Tourism elevates the demand for real estate and simultaneously boosts spending in retail, dining, and services. This comprehensive economic enhancement encourages further investments in local properties." As tourism flourishes, so does the local economy, with improved job opportunities and enhanced public services.

Tourists bring diverse cultural influences and new consumer preferences, which can lead to the emergence of new businesses catering to these tastes. From boutique hotels and specialty restaurants to unique local experiences, the business landscape evolves to meet the changing demands of visitors. 

Challenges and Sustainable Development

Despite the apparent benefits, the impact of tourism on real estate markets is not without its challenges. Mike Kotler warns of potential pitfalls: "While the initial economic boost is beneficial, it's crucial for development to be managed sustainably. Rapid growth can lead to overdevelopment, which might spoil the natural charm and appeal of the area that attracts tourists initially."

Sustainable development is key to ensuring that tourism growth does not detrimentally impact the environment or the social fabric of the destination. Effective zoning laws, environmental regulations, and community engagement are essential in crafting a balanced approach that supports both economic growth and conservation efforts. 

Infrastructure and Local Community

The infrastructure must keep pace with growth. From roads and transportation to utilities and public services, ensuring that the infrastructure can support both tourists and residents is vital for sustainable development. Overlooking this aspect can lead to significant problems, such as traffic congestion, water shortages, and inadequate waste management, which can degrade the quality of life for residents and diminish the area's attractiveness to tourists.

Furthermore, the impact on the local community must be considered. The influx of tourists can lead to a cultural shift, which might affect the local traditions and lifestyle. Communities need to find ways to embrace tourism without losing their identity, which requires careful planning and community involvement. 

Enhanced Urban Development and Revitalization

On the positive side, tourism can lead to enhanced urban development and revitalization of neglected districts. Pradeep Guragain highlights the potential benefits, "Areas that were previously overlooked often receive significant attention once they become tourist destinations. This can lead to urban renewal projects that enhance these areas, making them more livable and attractive, not just to tourists but to local residents as well." Guragain notes that such developments can help preserve historic buildings and improve public spaces, contributing to a city's overall aesthetic and functional appeal.

Looking Ahead

As the global travel industry continues to expand, the interaction between tourism and real estate will become increasingly significant. For communities, this means navigating the challenges of integrating new developments with the needs of existing residents. For investors and policymakers, it presents an opportunity to shape the future of local economies through strategic planning and thoughtful management.

In conclusion, while tourism can indeed be a boon for local real estate markets, it must be handled with care and foresight. With proper planning and regulation, communities can harness the economic benefits of tourism while preserving their cultural heritage and natural landscapes for future generations.

Amarillo sees rise in economic development and tourism costs

AMARILLO, Texas (KFDA) - The City of Amarillo saw an increase in its economic development and tourism expenditures, going from $2 million in 2022 to $4 million in 2023.

City officials say the main source of money comes from a higher rate of travelers staying in local hotels.

“The last several years, especially coming out of COVID, those hotel occupancy taxes just have been higher amounts because we have more people staying here locally staying in our hotels. So we have been able to put more money towards CBV,” said Laura Storrs, assistant manager and CFO of City of Amarillo.

The expenditures go to several different missions with the main ones being urban housing, entertainment, tourism expansion, and the visitors bureau here in Amarillo.

According to Storrs, this helps curb taxpayer costs by bringing in money from visitors, which in return boosts the local economy.

Copyright 2024 KFDA. All rights reserved.

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Tourism is benefitting our community more than ever (Opinion)

News News | May 4, 2024

Although the debate continues to be ongoing with regard to whether tourism benefits our region, the fact is our local economy relies on it. Tourism is what keeps many local businesses open, provides career and other job opportunities to many of our region’s residents, and generates TOT and TBID funding that our community is able to reinvest into programs, services, and infrastructure improvements we need.

The NTCA’s focus since early 2022 has been to establish the framework and processes that allow for the reinvestment of the funds tourism generates, with local oversight. Ultimately, TOT and TBID-generated funds are what allow our community to make progress on workforce housing initiatives, transportation and infrastructure projects, mitigate some of the tourism-related impacts felt by those who live and work here, and enhance quality of life for us all.

I’m pleased to report that with significant community involvement and the ongoing participation of dedicated volunteer committees, processes to reinvest tourism dollars have been enacted and are ensuring tourism is giving back in ways that matter. In fact, because of the relatively recent formation of the North Lake Tahoe Tourism Business Improvement District (NLT-TBID), our region has more tourism-generated funding to allocate to community priorities than ever before.

In April, at the recommendation of the volunteer committees it convenes, comprised of local business and community members, the NTCA Board of Directors voted to invest a total of $4.3 million in tourism-generated funding. Through the TOT-TBID Dollars At Work program’s Annual Grant Cycle, 13 projects that benefit the North Lake Tahoe community were recommended for grants. This investment provides access to matching funds of over $6.3 million, bringing the total investment—in specific workforce housing projects, trails and recreation improvements, litter clean-up, accessibility, and business incubator efforts—to over $10 million.

The projects that received funding through the Annual Grant Cycle are in addition to the 17 projects that were selected in Fall 2023 to receive up to $20 million in funding support over three years through the Sponsorship & Multi-Year Investment Program. The impact of the projects that received sponsorship funding will be felt through workforce housing, trail transit corridor, transportation and tourism impact-related efforts, and have the potential to unlock matching funds up to $35.3 million that can be leveraged over the next three years.

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There’s no doubt the TOT-TBID Dollars At Work program is doing exactly what it was designed to do. It has provided our community with a structured way to reinvest TBID and TOT dollars generated in North Lake Tahoe in support of initiatives that contribute to our community’s vitality, economic health and environmental stewardship. These funds are actively being used to address priorities surfaced through community forums, workshops, and surveys, including workforce housing, economic development, transportation, sustainability, tourism mitigation, and trails.

This is just the beginning. The first Annual Grant cycle is now complete, and we are already looking ahead to the next one that will launch in early Fall 2024. Tourism dollars are being spent to improve what matters most to North Lake Tahoe residents, businesses, and visitors.

Learn more about the projects and initiatives that have been funded by tourism here .

Tony Karwowski is the president and CEO of the North Tahoe Community Alliance

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At the Top of the Golden Gate Bridge, Governor Newsom Announces Tourism Spending Hit an All-Time High in California

Published: May 05, 2024

California remains the #1 state for tourism

WHAT YOU NEED TO KNOW : New data released today shows that California continues to have the largest market share of tourism in the nation, with travel spending in the state reaching an all-time record high of $150.4 billion last year.

SAN FRANCISCO – Governor Gavin Newsom and Visit California CEO Caroline Beteta today announced that travel spending in the state reached an all-time high of $150.4 billion last year, surpassing the record $144.9 billion spent in 2019. This comes after the state retained its title as the  world’s 5th largest economy  and had a  population increase , both of which are directly tied to California’s nation-leading tourism and entertainment industries.

VIDEO: Gov. Newsom makes announcement at the top of the Golden Gate Bridge

WHAT GOVERNOR NEWSOM SAID : “From our world-renowned coastline, to the world’s tallest trees, to our iconic cities and theme parks, California is the nation’s coming attraction. Visitors from all over the world are coming here to experience the wonder of the Golden State, boosting our economy and creating good-paying jobs for years to come.”

BY THE NUMBERS : The Economic Impact of Travel in California, prepared by Dean Runyan Associates and released by Visit California, detailed spending that is 3.8% higher than 2019 and 5.6% higher than 2022.  Spending exceeded 2019 levels in a majority of counties.

WHAT VISIT CALIFORNIA CEO BETETA SAID : “California tourism is back where it belongs – setting records and providing for the workers, business owners and all Californians who depend on the travel industry as a cornerstone of our state’s economy. The industry has once again proved its ability to recover from any challenge, whether it be economic or environmental. California continues to be the largest, most diverse and most resilient tourism economy in the United States.”

WHAT THIS MEANS : California has the largest market share of tourism in the nation. The new travel-spending record generated $12.7 billion in state and local tax revenue by visitors in 2023, marking a 3% increase over 2019. Tourism created 64,900 new jobs in 2023, bringing total industry employment to 1,155,000.

California remains the  5th largest economy in the world  for the seventh consecutive year, with a nominal GDP of nearly $3.9 trillion in 2023 and a growth rate of 6.1% since the year prior, according to the U.S. Bureau of Economic Analysis. California’s per capita GDP is the second largest among large economies.

In addition to visiting the state, more people are moving to California. Earlier this week, Governor Newsom  announced  the state’s population is increasing for the first time since the pandemic.

The Golden State, which has the most equitable tax system in the  entire country , is #1 in the nation for new  business starts , #1 for access to venture capital  funding , and the #1 state for tourism  spending ,  manufacturing ,  high-tech , and  agriculture .

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Cape Town Jazz Fest Boosts Tourism, Local Economy

Cape Town is gearing up for an economic boost as the acclaimed Cape Town International Jazz Festival (CTIJF) makes its anticipated return this weekend after a three-year hiatus due to the COVID-19 pandemic. Now in its 21st year, the festival themed "Reset, Connect and Revive Your Rhythm" is expected to attract thousands of visitors and reignite the city's hospitality, retail, and tourism industries.

"The event has historically generated around 3,000 or more additional income opportunities and jobs," said CTIJF spokesperson Kaz Henderson. "Audiences can look forward to four stages and 30 artists, mixing local talents like Judith Sephuma and Mi Casa with international acts like Moonchild."

With a lineup celebrating jazz and jazz-adjacent genres, Henderson promises "something for everyone" at the globally respected festival. Cape Town Tourism CEO Enver Duminy hailed the festival's return as an exhilarating prospect to revive the Mother City's vibrant cultural scene and deliver substantial economic benefits across multiple sectors.

Source: MSN

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