Theory: Tourism Impacts and Challenges

Negative Economic Impacts

Although the economic benefits from tourism are widely known, there is less awareness about the negative economic impacts. Tourism can threaten business by:

• increased operating costs, including energy due to higher demand
• increased competition
• lack of market differentiation
• decreased customer and employee loyalty
• inflation of land prices
• seasonality leading to partial unemployment or unproductive facilities

Leakage and dependency are other negative economic impacts. When a tourism provider buys supplies or services from outside the region(s) in which it operates, or when most revenues associated with a tourism service do not remain in the host economy, money is said to leak out of the local economy and thus provide fewer local direct or indirect economic impacts. To be economically sustainable for the local economy, tourism providers minimize economic leakage to the greatest extent possible. Dependency can occur if a region becomes too heavily reliant on one industrial sector like tourism. This is undesirable as it makes the economy vulnerable to sudden changes in tourist demand. A dependency situation is more likely to arise when tourism is developed in a less developed country, a small country or a small island where there are fewer economic alternatives. Tourism’s vulnerability can be reduced by attracting a broad base of tourists so that a downturn in one market will not be so damaging to the destination.