Tourism drives GDP through increased consumption and job opportunities. Tourists spend money on services and goods, leading to the creation of new industries. However, in smaller areas, tourism can lead to losses if establishments are owned by foreigners and profits are not reinvested locally.
The main component of gross domestic product (GDP) is consumption, which is driven by the demand for goods and services. One effect of tourism on GDP is that tourism influences the economy through the supply of labor. The main effect of tourism on GDP is the fact that tourism increases the demand for goods and services. Such an increase in the level of consumption increases the activity on the market and, accordingly, increases the level of GDP. However, not all effects of tourism are positive, as they can also lead to losses, especially in smaller areas.
Any area that has a high level of tourism-related activity creates a lot of job opportunities for the local people. Hotels, amusement parks, tourist attractions and other similar places need people to provide the necessary services. As increases and decreases in employment affect GDP levels by influencing people’s spending habits, employment provided through tourism has a positive effect on GDP. Employed people have income to spend and an increase in the level of consumption is a consequence of tourism on GDP.
In the area of tourism expenditure, the effect of tourism on GDP can be seen in how the demand for services by tourists affects the level of GDP of a reported area. Tourists spend money on airline tickets, cruise ship fares, restaurants, and a variety of other services. The impact of tourism is such that some economies are partially supported by tourism and its related factors. In these economies, tourism consumption of goods and services constitutes a considerable part of the total annual expenditure.
The effects of tourism are also evident in the way new services and goods are constantly being added to existing ones in order to meet tourism demand. For example, some small industries, especially handicrafts, are a direct result of tourist demand for souvenirs and other memorabilia or keepsakes. Some of these industries would not survive without the patronage of tourists who purchase such artifacts and items to take back home with them. In some areas where tourism is seasonal, these industries can only operate for the period when tourism is fully active. Thus, souvenir makers may have other sources of income and depend on the tourist trade as a part-time source of income.
A negative effect of tourism on GDP is in the area of losses, as is common in smaller, underdeveloped countries. This usually occurs when most tourist establishments are owned and operated by foreigners. Examples of such services include airlines, accommodations and other services. In these cases, the losses refer to the fact that the money earned from tourism is usually transferred to external bank accounts and does not significantly increase the local economy or GDP.
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