Recent decades have seen an unprecedented amount of economic development as ’emerging nations’ have sought to raise incomes per capita and reduce levels of absolute poverty. Their economies have grown, and citizens have experienced an improvement in their overall standard of living. Developing countries share some characteristics such as lower growth, lower standards of living, worse education, and lower life-spans, when compared to developed countries. Many developing countries also have rapid population growth. For these countries, the goal is to improve economic growth and access to basic needs for all, so that they can keep up with their larger populations. Development economists study strategies for growth, but most strategies in the current world fail because they require developing countries to be competitive in their trade and to have high quality capital to produce sufficient output, which is something they lack. Attempts to fix this include developed countries providing developmental aid and fair trade schemes but the effectiveness of these schemes are also dubious and often unpopular with those from developed nations. One potential solution around the capital intensive methods of development would be tourism.
The most accepted model of development is Rostow’s model from his Stages of Economic Growth. He characterises five stages of development. First, there is the traditional society, where the majority of people live on subsistence. Second, there are pre-conditions for take-off. This includes industries which extract raw materials beginning to develop, as well as trade and transport growing. Savings begin to accrue and thus financial institutions can lend more to firms for investment. Foreign investment also comes in the forms of either lending or companies setting up operations within the country. Third, there is the take-off. Here, manufacturing grows and agriculture declines, and the value of output is higher, leading to a multiplier effect. Fourth, there is the drive to maturity; growth becomes self-sustaining and industries more diverse as technology advances. Finally, there is the age of mass consumption, where output is high enough to create opportunity for mass consumption, and countries begin switching towards services.
However, there are issues with the implementation of Rostow’s model. Many countries in Africa and Asia are still at the first few stages even though they have received large amounts of foreign direct investment. Even those who have reached the take-off stage struggle due to the high amounts of debt they take on to invest with. Moreover, when transnational corporations decide which country they will offshore their factories to, they look for low labour cost and thin industry regulation. Therefore, to attract corporations, countries which engage in manufacturing must slash wages and have few regulations. This leads to a race to the bottom between developing countries who compete for large corporations to invest. Countries may be locked into the export of primary products as a result, blocking further development. Ultimately, not all countries have the same starting points in terms of natural resources and political backgrounds nor do they possess the same capability to advance through these stages.
Tourism avoids this conundrum as its value is unique to each country’s culture and geography. On this basis, it is easier to export, as consumers’ derived utility from these things are subjective, as opposed to manufactured goods, which have objective quality. Demand for tourism is also growing at a quick rate. From empirical data alone, countries which have embraced tourism for development tend to have a higher GDP per capita. This is illustrated by the fact that the five developing countries that have the lowest percentage of their GDP coming from tourism have a mean GDP of under $2500 per capita, whereas the five developing countries with the highest percentage of their GDP from tourism have a mean of nearly double that amount.
One benefit of tourism is that the jobs are of potentially higher value to the workers, and they add more value to the domestic economy. Tourism workers may enjoy jobs more as they are less subject to poor working conditions within factories, but also because the jobs are not as physically intensive and menial. Tourism workers are also able to interact with a variety of people every day, which may make jobs more exciting. This is important because if people enjoy their jobs, they are more productive and less likely to become discouraged workers, and they generate more output. In addition, the jobs export higher value output. While firms are not willing to pay very much for factory workers’ output, tourists are willing to pay a reasonable amount for their own utility. Firstly, good memories are probably high value to consumers, as they provide long-term utility. Furthermore, this may be because tourists want to make the most out of their time in the touristic country, and don’t want regrets, so they are willing to pay more for experiences.
Moreover, tourism incentivises investment in useful areas. In low-income countries, high levels of poverty make it difficult to generate sufficient savings to fund investment projects. Successes from tourism encourages more foreign direct investment, as corporations see the country as a hotspot for consumers. This additional investment fills in the savings gap, creating new jobs and thus improving living standards. Firms are also likely to build infrastructure, such as transport links, which are complementary to tourism, and schools, to facilitate training new workers. This leads to positive externalities as this infrastructure doesn’t only benefit firms and tourists, but locals too.
Tourism is also likely to continue to grow at a quick rate, as the middle class is growing in high population countries such as China and India, and in the future in the continent of Africa too, meaning more people have more discretionary income to spend on visiting other countries. As these people become richer, they also become more exposed to advertising campaigns, through means such as the internet, and therefore have more incentive to go abroad. Advancements in technology have also made visiting other countries a lot more convenient. Travel is becoming more and more affordable as the cost of supply decreases, meaning more people are able to go on holidays.
However, tourism also has flaws. Firstly, it overspecialises labour in skills that may not have the maximum output in the long run. This is harmful as retraining those who are working in tourism would be costly and require significant government planning. But overspecialisation is not a problem unique to tourism. In manufacturing, workers are also specialised into jobs which do not have many transferable skills.
Moreover, tourism makes the economy vulnerable to fluctuations in visitors. This could happen for various external reasons. For example the 1997 Asian financial crisis resulted in a 10% drop in the number of tourist arrivals into Indonesia between 1997 and 1998, and these numbers did not recover until 2004. With the Indonesian rupiah floated, its value dropped from around 2500 rupiahs to one dollar to almost 15000 rupiahs to one dollar within six months. Indonesia lost almost 15% of its GDP in 1998, leading to companies going bust and riots with death tolls exceeding 400. All of this detracted from Indonesia’s appeal to tourists. Iceland in 2010 is another example of external factors slowing the tourist industry; a series of volcanic eruptions between March and June caused extreme flight disruption, and the number of tourists recorded that year was fewer than the year before. However, the risk of these external factors occurring is low, and they also affect other sectors (for example, financial crises makes households cut back on spending, the Ukraine war affects supply chains for many commodities, and COVID prevents people from going to work).
Tourism also risks the Westernisation of culture to suit the appetites of its consumers, which may be very damaging. This may happen because the tourists whom the country relies on for income demand things that remind them of home, creating incentive for firms to invest in such things. For example, in Egypt, there is literally a Pizza Hut within half a mile of the pyramids of Giza. Things like this impede on the authenticity of culture, and can be upsetting to the local people, leading to negative production externalities. However, when more people visit these places, there is a higher demand to see their genuine traditions, so more attention may be placed on preserving culture.
Tourism brings environmental harms as well. The sheer number of tourists that visit the country means that they consume large amounts of key resources such as water and energy, which could lead to shortages. Tourists and firms also bring vast amounts of waste and pollution, as they likely care less about the environment where they don’t live long term. For example, the Nile in Egypt is severely under-policed, and firms which run cruises for tourists often spill sewage and fuel into the river rather than having to face the heavier costs of licensed containers. In addition, tourists dispose lots of plastic in the Nile, which can kill marine life and float into the Mediterranean Sea to cause more damage.
However, many countries are now embracing sustainable tourism, since it helps maintain the country’s attractiveness and is good for the wellbeing of their people, and because tourists themselves are becoming increasingly aware of climate issues and demand more sustainably produced holidays. One example is Vietnam, which has already suffered several environmental side effects from its tourism, and now has made legal requirements for waste management and energy and water usage. Sustainable tourism can bring even more awareness to environmental problems, and create positive consumption externalities as tourists strive to be more eco-friendly in the future.
Tourism is very similar to other strategies of development in terms of its risks, but its benefits are unique. The encouragement of investment into more useful sectors rather than just into factories to create parts to export is useful for development from the ground up, as the savings gap is better filled. The jobs tourism creates are better for workers in terms of work and pay. Tourism is also future-proof. Moreover, tourism exposes the environmental and cultural issues within a country and can generate awareness for them from high income countries. Therefore tourism is something that developing countries ought to pursue for not only prosperity but better living standards as a whole.