What is Economic Tourism Leakage? How to Prevent its Negative Impact

Are you curious about what happens to your tourism dollars long after you leave your destination and return home? In a perfect world, all the money we spend while traveling would support the local economy. It is easy to fantasize that no matter how or where we spend our money, it helps local businesses and destinations offset tourism’s negative impact. The reality is not as optimistic. A significant chunk of the money we spend while traveling ‘leaks’ out of our destination. It often ends up in the pockets of large international tourism companies or the hands of global food and beverage companies. Leakage is more likely to happen in developing countries that need it the most. At the end of its journey, the money lands in the banks and pockets of the wealthiest nations and corporations. It’s essential to learn about what happens to the money we spend while traveling, the negative impacts of travel leakage, and how we can inject as much money as possible directly into places we visit. Slowing tourism leakage is just one of the meaningful ways we can come together to save travel. 

• Tourism leakage happens when the money you spend leaves your destination
• It might go multi-national hotel chains rather than locals
• There are two types of tourism leakage – import and export
• Leakage happens everywhere, but developing nations are most affected
• How you spend your money matters – continue reading to learn more!

Leakage in the tourism industry is an economic concept. Now, if you would have told 20-year-old me, as I decided to quit my economic master’s program choosing instead to pack my bags and hit the road, that I would be knee-deep in economic concepts in the tourism industry 13 years later, I would have rolled my eyes and kept driving. But, I promise learning about tourism leakage will be much more interesting than my economic professor’s lectures. Yes, the very professor I convinced to let me take a final early so I could skip class and travel to Brazil, as long as I wrote an essay on the economics of the sugar cane industry in Brazil. Did anyone else convince their college professors to let them skip school to travel as long as they wrote papers about what they learned? No – just me? Ok, moving on.

Tourism leakage happens when tourism dollars leave the local economy and instead benefit multinational corporations, foreign companies, or countries. To determine the amount of leakage, we look at how the net income for tourism in a region is less than the gross or total spent on travel. For example, I spend $100 traveling to and staying in an all-inclusive 5* resort owned by Hilton in Bali. A total of $50 might go to United Airlines, the Hilton, hotel amenities imported from overseas, and food imported from a foreign country. The remaining $50 I spent while eating at one restaurant owned and managed by locals that source food locally is the only money that stayed in Bali. That means I spent 50% of the money during my trip to Bali leaked to other economies. So, while it might appear Bali has a profitable tourism industry, the numbers that stay in the local economy tell a different story.

Why is this a problem?

Well, for starters, the destinations feel the impact of tourism and therefore need the income from tourism to manage these negative impacts. The local Balinese and Indonesian governments must spend additional money cleaning up trash on beaches, building better infrastructure to accommodate travelers, mitigating the extra air and water pollution from travel, etc. Without this money, the local beaches could fill with trash while the city struggles to source the funds to maintain the beach. Meanwhile, foreign-owned hotel chains are profiting at the cost of regional well-being. The more money stays, the more local governments and people can better manage tourism for sustainable and long-lasting benefits. 

Is all tourism leakage bad?

Like most complex problems, the issue of tourism leakage is not black and white. Some might argue people who live in a developing country and seasonally work in a developed country benefit from the opportunity to work in a hotel and take that money home back and the end of the season. This is very common in Alaska, where many of the employees in Denali National Park come from Eastern Europe. Now, I agree these seasonal employees have an excellent opportunity to make some money and provide a better life for themselves, and that alone isn’t always a problem. It is a problem if they are taken advantage of. For example, many cruise companies exploit workers from developed countries and pay them next to nothing – that isn’t ok.

Furthermore, as I explain later, many locals may not be able to take jobs in tourism as companies can exploit foreigners for less pay. Bottom line, exploitation is never ok. Nor is it ok to justify exploitation by saying you’re helping someone from a developed country make an income. We can all do better. I encourage you to think critically as you read this article and how to apply this to your travels to make them more ethical.

Developing nations are more likely to be negatively affected by travel, and they are the ones that need the money more than anyone else. Unfortunately, leakage is the highest in developing nations but is present at any destination. 

NOTE: This article previously linked to and referenced an article published by the UN’s Oceans Atlas that was found to have a typo and incorrect information. The UN has since taken down the post. Thanks to Dale for shedding light on this inaccuracy in the comments. I take sharing accurate and relevant information seriously and apologize to anyone I directed to the incorrect numbers.

• Tourism leakage, on average, is about 50%
• This number is generally higher in developing nations and lower in developed nations
• But, every country with tourism has some level of tourism leakage.

According to a Ph.D. thesis by I Gusti Ayu Oka Suryawardani

• 4* and 5* resorts (likely foreign-owned) in Bali result in a 51% leakage.
• Non-star-rated hotels (likely locally owned) only result in an 8.8% leakage.

Import Leakage

Import Leakage is when destination countries spend their tourism revenue on imports to ensure the traveler’s specific standards and satisfaction are met. If travelers demand a particular brand, product, or food the host country can not supply locally, they must spend some of their profits to import products elsewhere. Many companies may also import employees, such as fluent English speakers, to make English-speaking guests more comfortable. Some companies import cheap labor, further exploiting citizens of developing nations while not providing stable jobs for citizens in which the company operates. 

Say if I, as a traveler, demand Coca-Cola products at every hotel I visit, the hotel must spend a chunk of the money I give them importing Coke, rather than offering me a local Spezi. To further exacerbate import leakage, travelers’ specific demands take away viable income and jobs from local beverage companies, farmers, or producers. 

Export Leakage

In most developing nations, large international corporations may be the only entities with the necessary capital to invest in tourism facilities that meet travelers’ specific criteria. Export leakage might happen when all-inclusive resorts owned by US Apple Leisure Group, for example, set up shop outside the U.S. The majority of the income spent by US American tourists visiting one of these resorts goes right back to the United States. US tourists visiting these resorts may expect a particular type of luxury accommodation or service that local companies can not provide. There may not be a Mexican-owned resort with enough capital investment to operating with the same standard US tourists demand. This means that profits benefit the international tourism industry rather than the local region. On the surface, these destinations make a lot of money on tourism, yet, much of it is leaking out.

We’ve learned a lot about tourism leakage problems, so it’s time to explore the actional steps you can take to be part of the solution. 

• Support local. You can book and support local and small tour operators and businesses. For example, in Alaska, there is a small-scale Native-owned cruise company. By choosing to support a company like Dream Alaskan Cruises over Carnival Cruises, you decrease the leakage and engage in sustainable ecotourism. Seek out locally-owned restaurants serving seasonal local fare. Hire local tour guides. Stay in locally-owned accommodation. The more local businesses you can support, the less leakage occurs. 
• Avoid foreign-owned, all-inclusive. I understand that all-inclusive can be the only way some people can travel. I also understand that sometimes large, all-inclusive resorts are the ONLY option in a region. But, you owe it to your destination to do what you can. Find a locally owned boutique accommodation or resort – or better yet, find those non-star-rated hotels in Bali or seek out homestays for authentic experiences that prevent excess leakage.  Skip the cruise and hire local water taxis to take you from island to island. If you opt for an all-inclusive, can you find a local all-inclusive? Support those who hire and train locals in management positions or source food and products locally. At the very least, look for those that give back to their destination targeting economic, social, and environmental goals that will help minimize leakage. Who owns it? See if you can find who owns the hotel you’re staying at, and look for ones that are locally owned and not sneakily owned by a US mega-company. 

• Small-Group Tours. If you don’t want to travel alone, try booking a small group tour as an alternative to international mega travel corporations. Small groups are a great way to travel and meet others without the large invasive cruise ships or tour busses. By finding someone specializing in small group travel while ensuring they support local businesses and accommodation, you’ll decrease the amount of import and export leakage while making like-minded friends along the way. Another great option is to travel with an ethical small group tour company, Intrepid Travel. Intrepid works to prevent tourism leakage on their tours.

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• Ask questions. Send an email asking how the tour operator or hotel supports local jobs before you book. Ask your tour operator if you will stay in locally-owned bed and breakfasts, if they will take you to local restaurants, etc. Many times, especially in developing economies, tour operators think tourists want something specific. “Oh, they are American. They must want certain foods and drinks.” By asking questions and letting them know you are open to experiencing the authentic culture, we can start the conversation to change travel. 

• Embrace the local culture. One of the best parts of traveling is the cultural exchange and experience you get in trying new things. Don’t expect to have the same US-American, Australian, or British products, food, and accommodation type at your destination. Don’t expect everyone in the hospitality to speak English. Embrace the local products, the local food, and be prepared for new experiences. In Kazakhstan, we stayed in some accommodations with many inconveniences, to be honest. Our host didn’t speak English; the food was not what I would typically eat, the rooming situation was interesting, and all sorts of things outside my comfort zone. But, that was just part of the experience, and my money went directly to a working Kazak mom and entrepreneur, and that’s super awesome. 

• Travel off-season. By traveling off-season, you are likely supporting year-round and stable jobs for locals. Most businesses, hotels, and excursions operating off-season probably employ permanent residents. Your money supports the local economy during a time when the destination may need it the most. Permanent residents spend their paycheck, adding to a diversified and healthy economy year-round.
• Research, Research, Research. If you plan your own itinerary, research every hotel and excursion company to see how they give back to the local economy. If you’re struggling to find these types of local services in a foreign country, perhaps you can find a local travel agent or planner to help you plan a customized tour supporting local businesses.

Tourism leakage doesn’t always happen in developing nations, and it can happen to vulnerable communities in wealthy countries like the United States. As you might know, I grew up in Alaska, where I also worked in the tourism industry. While I was a local Alaskan working for a local company, my job hinged on the cruise industry. 58% of travelers to Alaska visit via cruise ship, resulting in over a million tourists descending upon small Alaskan towns during a 4-month summer cruise window. The cruise industry’s relationship with small Alaskan communities is incredibly complex, bringing both valuable jobs and a long list of environmental violations. Despite the promise of economic benefit, tourism leakage in the Alaskan cruise industry is quite large, with a significant chunk of the money leaving the state and even the country. 

Most major cruise lines incorporate outside the United States in Panama or Libera, where they avoid paying taxes. So, right off the bat, most all-inclusive cruise revenue leaks out to international cruise companies’ pockets outside the United States.

In Alaska, most tourism occurs within a 3-4 month window, meaning most jobs do not offer stable year-round employment. Thus, many locals choose not to work in the tourism industry as they seek out year-round employment with benefits. The company I previously worked for employed hundreds of people during the summer and only a handful of office and management staff during the winter. Even then, during the summer months, I was one of a dozen full-time Alaskan residents working in the industry. Many people come from out of state or country to work during the summer. Thankfully my company paid well and didn’t exploit their workers, but employees worked all summer to save every penny so they could return home with a decent chunk of money. All the money my company was paying its employees immediately leaked out of Alaska by winter. 

Why this matters

Small Alaskan towns along the cruise route are left suffering from increased air and water pollution and massive crowds invading their home in the summer. Cruise ships fill city dumps with poker machines and toxic waste. Many locals are denied access to nature in the summer due to crowds. In return, they are left with little money to mitigate pollution, create a better mass tourism infrastructure, manage the increased waste left behind, or manage their parks. To make matters worse, cruise companies often ignore local pleas to follow strict environmental regulations, fail to hire local Alaskans, may not support Indigenous communities, and may not utilize local products. 

The cruise industry is vital to these smaller communities providing one in five local jobs and adding millions to the economy. Still, the appearance of a profitable industry is much larger than it seems. In 2000, the Juneau Empire reported that for every dollar spent in Skagway, Alaska, from cruise passengers, only .10 cents remained in Skagway. Reducing the leakage from the cruise industry in Alaska puts more money in the hands of locals and the state to engage in better mitigation efforts for the environmental impact of cruising and better infrastructure to accommodate mass tourism in the summer months. You can visit Alaska without a cruise, travel Alaska during the winter offseason, or support a local Native-owned cruise company to reduce leakage.

Critical Thinking and Discussion

• Can you think of examples of tourism leakage in a place you visited? Perhaps you’ve even engaged in practices that added to the leakage problem, but you’ve learned since then. What are some examples you’ve encountered? What are some ways you can prevent leakage? 
• Think of an example of tourism leakage in your home region and what problems it presents for your community. Share in the comments about how travelers to your area can be more aware of this leakage so they can be more informed travelers. 

Share your thoughts and answers to the questions in the comments to discuss with the curious animal pack!

Make sure you share this post about the negative impacts of tourism leakage and actionable steps we travelers can take to prevent it from happening. The more informed we are the more we can ensure our money is helping the communities most impacted by tourism.