Tourism- versus non-tourism-led growth: Which is superior?

July 28th, 2025

Anda Nugroho & George Verikios

Recent pro-tourism policies are strongly influenced by the tourism-led growth hypothesis that suggests that international tourism can generate various benefits, including foreign exchange revenue, employment opportunities, and eventually promote long term growth. Given tourism’s current substantial contribution and future potential, many countries are strategically targeting tourism for economic development. This is done, for instance, by incorporating tourism into long-term development strategies and establishing a dedicated ministry focused on promoting the industry.

Our study reveals the underlying mechanism by which tourism expansion drives long-term economic growth and compares it to non-tourism-led growth. We conduct long-term simulations (up to 30 years) using a general equilibrium model with dynamic macroeconomic features, which captures the economy’s transition between steady states along a balanced growth path. We find that whether or not tourism can drive growth depends on its relative capital intensity compared to the rest of the economy. In our case, the expansion of tourism alters sectoral rates of return, leading to inter-sectoral shifts that promote capital deepening. This process raises output per worker, thereby enhancing overall productivity. Another key finding from the study is that tourism serves as a more effective growth driver than agriculture and manufacturing, though it ranks second to mining. However, unlike mining which faces sustainability concerns due to resource depletion and price volatility, tourism offers a more sustainable growth pathway.

For more information, please see the paper here: https://www.sciencedirect.com/science/article/pii/S0160738325001069