What is economical leakage from destinations?

Tourism is one of the biggest industries in the world, and creates income and workplaces for many people. It sounds like a perfect combination, but unfortunately it is not all that good for the destinations due to economic leakage in destinations or tourism leakage as many prefer to name it.

The leakage effect describes how the money from tourism doesn’t end up in the host destination. This is especially a problem in poor regions and developing nations where as much as 95% of the money are going somewhere else. If a person from a developed country spends 100$ on a vacation, only 5$ are left in the visited developing destination (!).

The reasons are partly because the travel and tourism industry is international by nature, and because the world is increasingly getting globalized. This allows big companies and multinational corporations (MNCs) to “monopolize” the world, and establish business in other countries. The economic leakage is far more prevalent now than ever before.

The phenomenon of economic leakage comes in various ways and forms, like foreign ownership, foreign employment, tour operators, agents and other middle-men, imported goods and currency conversion. One good example of this is resorts. The owners are foreign, the employees are foreign, the goods you buy are foreign. 

You can see economic leakage everywhere. When you are booking via online tour operators like Expedia, or booking via traditional tour operators, when you are flying via Ryanair or KLM and the money go back to Ireland or Netherlands, when local companies advertise on Google, when you stay at a Hilton or Radisson hotel, when you buy soft drinks from Nestle or Coca cola company in a local shop, though the locals have their own types. When buying chinese made souvenirs in the local souvenir shop.

Keep your eyes open 🙂