Tourism and Economic Development: A Survey

Faced with the problems of declining terms of trade for agricultural products and high levels of protection against manufacturs, many developing countries have turned to tourism as a possible alternative source of growth. This paper provides a comprehensive survey of the literature on tourism and economic development, identifying both the contribution that tourism can make to development and the costs that it entails. Single equation and system of equations models which have been used to estimate tourism demand are provided and evaluated. The estimated elasticity values indicate developing countries' potential to benefit from increasing expenditure on tourism but their susceptibility to deterioration in price competitiveness. The economic features of the main sectors of tourism supply - transportation, tour operators, travel agents and accommodation - are examined and the role of cross-country integration between firms, operating in imperfectly competitive contexts, is highlighted. Tourism's considerable contributions to foreign currency, income and employment generation are examined. The paper argues that many of the problems associated with the use of developing countries' environmental resources for tourism stem from market failure. Methods which can be used to value such resources are provided and implications for using the market mechanism to increase returns from tourism are suggested.