Tourism revenue loss affects environment, local communities abroad

A 2024 report by the Travel Foundation revealed that, on average, between 50% and 80% of what tourists spend on vacation flows out of a local area, leaving a myriad of adverse effects on the local economy. This phenomenon is known as economic leakage.

When responsibly planned and executed, tourism around the globe is known to create job opportunities, improve infrastructure and support environmental conservation efforts. When not managed equitably, however, tourism can destroy ecosystems, cause social friction and benefit only a select few.

“Tourism can be a conduit of conservation if it is planned and managed correctly,” said Christina Cavaliere, associate professor of human dimensions of natural resources at Colorado State University. “However, much (of) tourism is not planned or managed correctly, so it becomes an environmental and social threat.”

Experts pointed to high economic leakage as a symptom of weak tourism management, which stunts the sector’s ability to positively impact communities. Economic leakage is the proportion of total tourist expenditure that does not remain in or reach a destination’s economy.

“Economic leakage is when the money leaves the destination where the resources were utilized and goes back to where the multinational corporation is headquartered,” Cavaliere said.

Two major drivers of this leakage are the overseas ownership of hotels and resorts and the importing of goods and services by foreign companies.

Many multinational resort chains and all-inclusive resorts import a large number of goods in order to meet the demands of international guests. This includes food and drink, construction materials and global marketing expenses.

“The all-inclusives often have a tendency to import food, in part because of the tastes of their client base,” said Andrew Seidl, professor of agricultural and resource economics.

In addition, local farmers and supply chains may not meet companies’ standards or have the ability to produce consistently at high volumes. These supply issues result in an increase in imports by hotels and resorts.

A major tool in addressing economic leakage is governance, which is achieved through a combination of multiple stakeholders.

“The government would be a stakeholder, but so would community groups, so would local nonprofits, so would local businesses, so would universities and education systems,” Cavaliere said.

In Colorado, the Colorado Tourism Office’s Destination Stewardship Strategic Plan is the first time, as of 2024, that Colorado has had a statewide plan to promote sustainable and restorative tourism. It is also an all-inclusive guide for industry leadership, the tourism industry and tourism partners to look at shared priorities.

“It is such a milestone for the state of Colorado to be able to have this destination management plan,” Cavaliere said. “To make sure that tourism throughout the state is being developed in a way that is contributing actively to the conservation of biodiversity and communities.”

These plans in addressing tourism are crucial to combat economic leakage. Cavaliere highlighted that plans and practices are implemented all over the world and help affected areas save time and money.

“So instead of trying something new, (communities) can replicate something that was successful, with minor adjustments that are culturally and specifically appropriate to the site,” Cavaliere said.

Cavaliere is an interdisciplinary social scientist and tenured professor at CSU who develops frameworks for stakeholders involved in tourism so they can better serve local communities and their corresponding environments. One major strategy the Travel Foundation’s report featured to address economic leakage was direct revenue streams from tourism. Examples include tourist taxation, foreign visitor fees and entrance fees to parks.

“For example, lots of countries have an entrance fee at the airport, 50-100 bucks for any international tourist to get into the country,” Seidl said. “There are a lot of ways that we can try and generate revenues that will then be able to be plowed back into local communities or nature.”

Lina Xiong, associate professor of human dimensions of natural resources at CSU, emphasized the local government’s role to prevent external companies from taking all the profits from tourism and creating economic leakage.

“Lots of destinations have a tourism tax, where a certain percentage has to go to support local communities, support schools, support the infrastructure,” Xiong said. “So that’s really important for legislation to consider — that part of the tourism profit has to stay here.”

The 2024 Travel Foundation report featured a case study on a sustainable tourism tax developed by The Balearic Islands Agency for Tourism. The tax was enforced based on where a tourist stays, such as at a hotel or a cruise port stop. It was also based on the time of year a tourist was traveling, with a larger tax during busy tourism seasons and a smaller tax during slower ones. As of 2024, the tax raised 262 million euros and developed 167 projects that were allocated toward sustainable and regenerative projects.

Some of the projects concerned environmental rehabilitation, training and employment in the tourism sector, the preservation of cultural heritage, social housing and other beneficial works.

Economic leakage is especially a problem for what are known as small island developing states, which include a select few countries that face “unique social, economic and environmental vulnerabilities,” according to the United Nations. Some of these nations include The Bahamas, Jamaica and Barbados.

“Unfortunately, these countries often do not have adequate financial and economic resources, governance and institutions, and environmental regulations in place to manage local tourism efficiently and sustainably,” said Edward Barbier, a university distinguished professor of economics at CSU.

However, better utilizing the tool of tourism through governance and strategy has the potential to greatly improve the conditions of a country’s environment and community, Seidl said.

“Tourism is one of the biggest and most important industries or engines of economic development in the less-developed world,” Seidl said. “It’s a vehicle to transfer money from richer to poorer, and we need to do that in a way that benefits local communities more than the international providers.”