Where Does the Money Go? 

By Anjali Nayak 

In August of 2020, the World Economic Forum released a list of the ten destinations that rely most on tourism for jobs. All ten destinations are considerably below the average GDP, meaning that while tourism heavily contributes to the global economy, the places themselves hardly experience any economic growth. Subtly, the vast majority of profits made due to tourism end up elsewhere. This tragedy is known as tourism leakage, and often undermines any potential benefits tourism may have. 

Whether it be profits distributed to foreign companies (such as airlines or resorts), or foreign imports to meet tourism demand, the actual amount of money that is given back to the destination varies wildly. The effects are particularly pronounced in developing nations, where according to the UN’s Ocean Atlas: “On average, of each 100 dollars spent on a vacation tour by a tourist from a developed country, only around 5 dollars actually stays in a developing-country destination’s economy.” There are two obvious sources for tourism leakage: import leakage and export leakage. 

Import Leakage

As wealthy families flock to destinations that rely heavily on tourism, there is a larger demand for big brand commodities. A consumer’s decision on which product to buy is largely influenced by their loyalty to a specific brand — in order to aid the many tourists, developing countries are forced to further rely on products manufactured by large corporations. 

Instead of giving back to the community, many tourists opt to buy foreign exports rather than locally made products. Buying foreign brands often contributes to the cost of importing — not the destination itself. 

Export Leakage 

On the other end of the spectrum, export leakage is when foreign investors export profits they have made back to their home country. Imagine an international organization buys a pristine strip of white beach in the Caribbean, and spends multiple millions of dollars on developing it into a luxurious, all-inclusive resort. The creation of the resort is a significant investment, and represents a major risk to shareholders. Thus, the company’s primary interest in the resort is to generate profit. Even though it employs local workers and benefits directly from the natural beauty of coastline, the money made is getting sent right back to the company’s headquarters overseas. A UN study in the Caribbean found that St Lucia lost as much as 56% of its tourism income to export leakage, while Jamaica lost up to 40%. 

The domination of major corporations in the tourism industry funnels the money from the destination itself to the large companies that pull every string, make every decision. The best way to travel ethically is to seek out local businesses.