Let’s Talk About Tourism Leakage: What is it & How to Combat it?
What tourism leakage is, and why it’s important to consider where you spend your money when you travel.
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As travellers ourselves, we’re huge believers that tourism can have numerous positive benefits. It can help to educate people, spread awareness of local issues, and generate important revenue for local communities, as well as help to conserve natural areas and protect threatened species.
But as we’ve travelled more extensively, we’ve become more aware of issues and challenges that certain destinations are facing, and sometimes it raises the question: is travel sustainable?
While it’s true that tourism can be hugely beneficial, when improperly managed, it can also be incredibly destructive. Irresponsible tourism can have a host of negative social, environmental and economic impacts.
In this article, we’re going to delve more into one specific issue with unmanaged tourism: Tourism Leakage. What is it? Why is it bad? What can we do to combat it? We’re going to answer all these questions below.
What is Tourism Leakage?
Let’s start with the basics. When we travel, we spend money. Some of that money is spent at home before we travel, and some of it is spent at our destination.
For the positive impacts of tourism to benefit a local community, money spent by tourists in a destination needs to actually reach the local community. Unfortunately, this isn’t always the case.
The development of destinations often leads to commercialisation, with an increase in chains and international brands. Money spent at these establishments ‘leaks‘ out of the local economy as it profits the owners or conglomerates who own these brands, who are more often than not based abroad – this is tourism leakage. Money leaking out from the local economy happens a lot more than you might think.
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What are the causes of tourism leakage?
The root cause of tourism leakage is consumer choice: where tourists decide to put their money. Spending your vacation dollars in a way that doesn’t benefit the destination you’re staying in can be a choice many travellers make for a variety of reasons.
Lack of awareness is a major cause of tourism leakage. Many visitors just don’t think about where their money is going and haven’t been challenged to think about it before. International brands offer a sense of familiarity and a promised consistency of quality that is appealing to many travellers, particularly those who are less adventurous or new to travelling abroad. Many of these brands also offer loyalty schemes or point-collecting initiatives that can help you save money on travel, which is appealing to many.
Another cause of tourism leakage is using your home currency abroad. For example, using US dollars in Central America is widely accepted, but can be detrimental to the local economy. Business owners can lose out in the exchange rate to their local currency and are ultimately paid less than if a tourist had exchanged their money and paid them in the local currency. This means there is less money going into the local economy overall, and money is leaking out via currency exchange commissions.
Expenses before a trip
Now, let’s break tourism leakage down further, starting with the components that go into booking a trip. Trip planning usually starts at home. Examples of expenses before a trip include your airfare, visa, taxes, travel insurance and medicine. You can buy these directly through a travel company, travel agency, or through a third-party booking platform. There are pros and cons to these methods, and they are usually chosen due to personal preference.
A lot of expenses before a trip benefit international and outbound corporations and are not directly related to the country you will be travelling to. For example, if you’re flying from the UK with a UK airline, your money will remain in the UK and not go towards your travel destination.
Expenses during the trip
Some expenses, when you reach your travel destination, might benefit the national economy. Expenses like airport and visa fees are paid in-country and therefore remain there. But these expenses are not being spent in the specific destination (city, town or area) you’re travelling to within that country.
When you do reach your travel destination, there are numerous ways you can spend money there. Let’s look at them.
Accommodation
Accommodation is one of the biggest expenses when booking a trip and therefore can have a big impact on tourism leakage, depending on where you choose to spend your money. Typical tourist accommodation includes hotels, hostels, BnBs, Airbnbs, homestays, camping and more.
Choosing independent and locally owned accommodation can benefit native business owners and means the money is directly going back into the local community. Whereas booking an international chain hotel can contribute to tourism leakage, as the money benefits an offshore company.
Your accommodation’s ethos is also important to consider. Eco-conscious and environmentally friendly accommodations put in place initiatives to reduce their use of resources and impact on the local environment.
Eating out
Eating out is one of the joys of holidaying and, for some travellers, it’s even the main attraction. Trying local cuisine is a great way to immerse yourself in a destination’s culture. But if you’re eating at the same establishments you would at home, you’re likely contributing to tourism leakage.
Restaurants, bars and cafés owned by international corporations often send their profits back to headquarters. Choosing to eat at independent and locally owned eateries means the money you spend is directly going back into the local community. It’s also more likely you’ll get to try more authentic dishes prepared by those who know how they should taste.
Eating street food is not only another great way to combat tourism leakage, as most vendors are locals, but it also provides a lot of bang for your buck.
Groceries
Self-catering is a great way to save money when you travel, but it’s important to consider where your food is coming from. Many large grocery stores in tourist destinations are actually multinational corporations, meaning they operate in multiple countries. Often, the profits from these shops are shipped back to the home country. Shopping at local stores and farmers’ markets is a more ethical way to shop abroad, as your money is directly going back into the local community.
What you buy is also just as important as where you shop. A great demand for items that are foreign or out of season can mean produce is shipped in from abroad, denying local producers income. Buying in-season and locally sourced foods not only helps to combat import leakage but is more environmentally friendly too, as your food has a smaller carbon footprint.
Activities
As with accommodation and eating out, who you book your tours and activities through can contribute to tourism leakage. Choosing independent and locally owned tour companies and ecotours means the money you spend is directly benefiting the native owners of these businesses. Whereas, if you book through the concierge service of your internationally owned hotel, that money is likely being sent abroad.
Booking when you arrive is a great way to suss out locally-owned tour companies that might not have a presence online. Booking directly and not through third parties is another great way to combat tourism leakage, as none of your money is skimmed through commission to the (more often than not) international third-party brand.
Souvenirs
A souvenir may be a great reminder of the destination you’ve visited, but ironically, most souvenirs are actually made abroad and shipped in. We’ve seen the same products for sale in souvenir shops all over the globe, from Mexico and Hawaiʻi to China and Australia.
Utilising artisan markets and shopping in boutique stores is a great way to find local artists and pick up a souvenir that is actually unique to your vacation destination. Supporting local business owners helps combat tourism leakage and import leakage, as a decline in demand for foreign souvenirs means less will need to be shipped in.
It’s also important to consider the impact of the materials of the souvenir you buy. As a rule, anything made from animal products or taken from the natural environment can have negative impacts on local flora and fauna and create demand for equally disturbing practices like poaching.
Examples of tourism leakage
Here’s an example of a vacation that contributes to tourism leakage. You fly from the USA to Mexico with American Airlines – the money for your airfare goes back to the USA.
While there, you stay in an American-owned chain resort (e.g. Marriott, Hilton, Wyndham) – your money again goes back into the American economy.
You use the travel agency within your hotel to arrange your vacation activities like snorkelling, whale watching, adventure activities and days out – a large commission rate is taken from the local tour providers and goes back to the USA. Or the American-owned hotel provides its own tour guides and organised activities, so no money goes into the local community at all.
For meals out, you choose chains you recognise like Hard Rock Café, Starbucks, Domino’s, KFC and Cheesecake Factory – your money goes back into the country of ownership of these chains (e.g. USA and UK).
You might feel like, by visiting a destination, your money is going into the community. But often, the place you’re staying, the foods you’re eating, and the activities you’re doing aren’t benefiting the local community at all but are actually contributing to tourism leakage.
Why is Tourism Leakage a problem?
Tourism leakage is mainly due to money escaping a destination to the resident countries of outside international brands, known as export leakage. Therefore, the main culprits are (usually Western) organisations that choose to develop outside their country of origin. Tourism leakage is particularly a problem in developing countries. A few places where tourism leakage is really an issue include Thailand, the Caribbean, Hawaii, and India.
Tourism leakage neutralises the income from tourism, as the money doesn’t stay within the country, which can be particularly hard on developing economies.
However, tourism leakage can affect first-world countries too. Working holiday visas in countries like Australia, Canada, and New Zealand can create a leakage where temporary foreign workers save their salary and take it home with them after their placement. This is especially prevalent in areas like hospitality, where roles would usually be filled by locals.
There are many socioeconomic components that are affected by tourism leakage. We’re now going to go through some of the main impacts.
Import
The importation of goods and services is made essential when local resources and materials can’t meet tourist demand. These products are then imported from outside the destination, denying locals a source of income. This is known as import leakage. It’s believed that up to 50% of tourism income for developing countries is lost through import leakage.
Geography
Many multinational corporations develop abroad by buying up and privatising land. This not only means they are taking up space which could be developed by local enterprises, but they also often raze natural habitats and destroy sites of cultural and historical significance in the process.
Environment
Multinational corporations are motivated by money, and this sometimes means profit comes at the cost of the local environment. Many times, natural areas are destroyed for the development of chain hotels and branded restaurants. These companies also often create a lot of waste and release a lot of Carbon Dioxide, which can also lead to the degradation of the environment. The responsibility of keeping local areas clean can often fall to and put a financial strain on local communities and governing bodies, rather than the corporations responsible for the pollution.
Waste
Many tourist establishments, like hotels, are notorious for using single-use plastics. This waste often cannot be recycled and can put pressure on local infrastructure, which was not designed to handle such an influx of materials. This can have a huge environmental impact, as well as substantial financial costs.
Wildlife
Unfortunately, the suffering of animals for tourist entertainment is widespread and largely due to big brands that prioritise money over animal welfare. Many animals are sacred in local cultures but are poached for souvenirs, entertainment or traded on the black market. Many large tourism brands that operate internationally might supply your flights or hotel, and still support these practices. You’d be surprised how many large names you probably recognise still sell tickets to captive dolphin shows or zoos.
Resources
Tourism can contribute to the unfair distribution of natural resources. This can be particularly impactful in small or remote nations, where resources like water and electricity are already limited. Overdevelopment of tourist attractions can deny local communities access to vital resources they need to live comfortably. Areas that have faced natural disasters will also have a greater demand for these resources, so it’s not sustainable to travel to these areas during recovery, as your presence is taking away resources needed by locals. This pressure is exacerbated by tourism leakage.
Finances
One of the largest impacts of tourism leakage is price inflation. With money being shipped offshore, often local prices increase to replace the loss of income. Multinational corporations may also manipulate their pricing to reduce their taxes and other duties. Some may even gain tax exemptions or other offers to increase foreign investment. This leads to a large loss of income to the host nation.
Economy
Disproportionate income between multinational corporations and local communities can lead to huge pay gaps between local and foreign workers. Often, local salaries are not proportionate to economic inflation and can lead to an economy where the average price of goods is unattainable for locals.
Culture
Contributing to tourism leakage often means choosing (usually Western) brands over local ones. This can lead to a lack of diversity of experience as local culture is not represented within tourism. Only choosing brands you are familiar with on vacation can result in shallow and stereotyped views of nations and their people. This can result in a lack of respect and mob mentality, where areas of popular foreign vacation destinations come to be seen as ‘second homes’ or an extension of the tourists’ country of residence.
Los Cabos is a beautiful part of Mexico and a popular spring break destination for US travellers. But it has been developed by so many American chain brands that it is completely unrecognisable from the rest of Mexico. This familiarity can result in travellers showing obnoxious behaviour and disrespect to locals as they fail to accept they are actually visiting another country.
Another danger of this attitude is the appropriation of culture and cultural erosion as locals are driven from their own communities, and their identity and history are wiped from the area.
Tourism Leakage Statistics
Recent studies have published some pretty shocking statistics regarding tourism leakage. Here are a few quotes from journals and studies that have shed light on tourism leakage:
“On average, of each US $100 spent on a vacation tour by a tourist from a developed country, only around US $5 actually stays in a developing-country destination’s economy.”
“A study looking at tourism ‘leakage’ in Thailand estimated that 70% of all money spent by tourists ended up leaving Thailand (via foreign owned tour operators, airlines, hotels, etc.). Estimates made for other Third World countries range from 80% in the Caribbean to 40% in India.”
UN Ocean Atlas
According to the UNEP study, the leakage rate in developing and LDCs is approximately 50–60% and 10–20% in developed countries.
Economic leakages in tourism: A comprehensive review of theoretical and empirical perspectives
“The highest percentage of tourism leakage was found in 4 and 5 star chain hotels (55.31%). Lower levels were found in 1, 2 and 3 star hotels (15.66%), followed by 4 and 5 star non-chain hotels (7.14%), with the lowest leakage being in non-star hotels (2.0%).”
Impact of tourism leakage on the growth of economic sectors, employment and income distribution in Bali, Indonesia
How to combat tourism leakage
No one’s perfect all the time, and the true power of sustainability is finding a balance between personal benefits and wider social and environmental benefits. Ultimately, the power of change lies with multi-national corporations that hold more power and have more impact than any one traveller can.
These companies and conglomerates need to adopt fairer, more locally integrated business practices that ensure a greater share of tourism revenue stays within destination communities. Large hotel chains, cruise lines, and tour operators can source more goods and services locally instead of relying on imports or expatriate staff. Corporations can also partner with local suppliers and invest in training programs that help small businesses meet international standards, fostering stronger domestic value chains.
Governments and tourism boards also have a lot of power, encouraging this by implementing local-content policies, tax incentives, or sustainability certifications that reward companies for reinvesting locally. Transparency in financial reporting, ethical contracting, and community development initiatives are equally crucial for holding multinationals accountable.
But we are responsible for our own actions and choices. If every traveller made a few minor changes in the way they spend their money on vacation, the money leaked internationally through tourism would be greatly reduced. There’s no obligation to make the right choice every time, but changing your choices to more sustainable options is a great start and will go far in combating tourism leakage.
What you can do to combat tourism leakage
By choosing to be a part of responsible tourism, you can help sustain the natural resources and conserve the environment and native communities of your destination for the enjoyment of generations to come. Here are a few great ways to combat tourism leakage:
Tourism Leakage Resources and Extra Reading
Want to learn more? Here are some resources we found useful:
Read next:
What is Sustainable Travel? A Simplified Guide
65 Ways to Be a More Responsible Traveller That Actually Make a Difference
The Dark Side of Travel: Negative Impacts of Tourism
Let’s Talk About Overtourism: What is it & Why is it a Problem?
Let’s Talk About Ecotourism: Is It Really Sustainable?
