Economic development

Understanding how tourism spending can advance economic development

Feb 15, 2019

Tourism is good for a country’s bottom line. But it can also help thousands of struggling residents climb into the middle class. Visit any popular tourist spot and you’ll see a bustling crew working to make the experience memorable. Many of those workers are young and striving to succeed—selling handmade souvenirs or local delicacies, offering scooter tours or driving tuk-tuks. Others are small merchants selling clothes, local crafts or agricultural products.

Global tourism is a $1.1 trillion business. And yet, we know relatively little about how effective tourism is in helping countries achieve inclusive growth. The Center for Inclusive Growth has joined forces with Harvard’s Center for International Development to help close that knowledge gap.

Through this unique collaboration, Harvard researchers have been analyzing foreign tourism trends for 40 countries using anonymized and aggregated transaction data. The insights have allowed them to break down tourism spending in different ways—by categories of spending and how those spending patterns differ city, for example. The goal is to offer policymakers a deeper understanding of tourism spending patterns so they can better tailor their tourism strategies to advance economic development and inclusive growth.

In a brief sharing initial findings, the researchers expand the definition of “tourism spending” to encompass all purchases of goods and services made by foreign citizens in a particular country. Under this definition:

Tourism accounts for more than 8 percent of exports—comparable to trade in oil and energy and just slightly smaller than agricultural products.
Hotels and restaurants make up only 30 percent of tourist spending. Tourists also spend significantly on apparel and accessories, groceries, transportation and educational services. Considering only the “usual suspects” of hotels and restaurants would effectively miss 70 percent of all tourist spending.
Data-driven insights allow for city-to-city comparisons, which can help cities fine-tune their sectors. For example, while both Milan and Naples attract many tourists, Naples earns most of its money (about 60 percent) from restaurants and hotels, while Milan benefits from spending on fashion. Spending on apparel in Milan is nearly twice the rate of such spending globally.
Policymakers can leverage these data-driven insights to identify fast-growing sources for foreign tourism, such as China. The number of tourists from China to the U.S., for example, has grown by an astounding 22 percent annually between 2011 and 2016. Other countries with large traveling populations include Argentina, Egypt and Saudi Arabia. Mongolia and Venezuela, on the other hand, have seen sharp declines.
Tourism-related profiles often vary drastically by destination. The share of tourism expenditures resulting from China-based tourism in Los Angeles is almost three times as large as in New York City, which is dominated by European-based tourism.

With access to deeper insights, countries can begin to view tourism with the same precision they do for the exports of goods. In the coming months, Harvard researchers will be digging deeper into the following questions:

How can we classify tourism into different types? What kind of services do different tourism types require?
Can we predict where new tourist destinations will arise, where those visitors will be coming from and what services they will need?
And, most important, how can tourism accelerate economic development and be a source of inclusive growth?

There’s much more to come, so stay tuned!

A note about the data:

In its collaboration with CID, Mastercard provided controlled access to data that was aggregated, anonymized and subject to additional privacy and data protection safeguards. In addition to these safeguards, access to the data was provided for academic research purposes only and subject to Harvard University's stringent confidentiality requirements.