When Paradise Pays the Price

While one man’s holiday is another man’s income it increasingly also is a third man’s problem. The Université du Luxembourg concludes a recent study on the impact of tourism with the warning: “Chasing profits at the expense of nature and culture can turn paradise into self-destruction.” 

It is a timely reminder. Tourism is a major global industry, contributing over 10 percent to global GDP and generating millions of jobs worldwide, according to the World Bank and the World Tourism Council. For low and middle-income countries (LICs and MICs), especially Small Island Developing States (SIDS), tourism presents a significant opportunity for economic development, cultural exchange and environmental preservation. However, alongside its many benefits, tourism also poses a number of economic, social and environmental challenges that can undermine sustainable development if not properly managed. 

Tourism in LICs and MICs: Opportunities and challenges 

Opportunities 

Tourism brings a range of advantages, many of which are extremely helpful to LICs and MICs that have few economic advantages due to their small size, geographic isolation, lack of manufacturing comparative advantage and limited capacity and knowledge to develop revenue generating activities. 

1. Economic growth and employment - Tourism is often one of the largest sources of foreign exchange in LICs and island MICs. It can stimulate the economy by creating jobs in hotels, restaurants, tour operations, transport and the cultural sector. For SIDS like the Maldives, Fiji or Saint Lucia, tourism can account for more than 30 percent of GDP. The sector also promotes indirect employment in agriculture, handicrafts and other supply chains. 
2. Infrastructure development - To accommodate tourists, governments and private investors often fund the construction of roads, airports, water systems and communications infrastructure. These improvements can benefit local residents by increasing accessibility to basic services and reducing isolation, especially in rural areas and island communities. 
3. Cultural exchange and global awareness - Tourism fosters greater global understanding and appreciation of local cultures, traditions and heritage. In many countries, cultural tourism encourages the preservation of indigenous languages, crafts, music and historical sites. This is especially important in SIDS, where unique cultural identities are both a key attraction and a vulnerable asset.
4. Incentives for environmental conservation - Tourism can provide financial incentives to preserve natural areas and biodiversity. Ecotourism initiatives in countries like Costa Rica and Belize have helped protect rainforests and marine ecosystems. Marine-based tourism in island states can encourage the establishment of marine protected areas and promote sustainable resource use. 

Challenges 

At the same time, tourism can exacerbate problems in already fragile and weak countries. The idea of tourism driving development can often be discounted due to its exclusivity, overuse of scarce resources and diversification of limited funds to a small section of the (temporary) population at the expense of most locals, often the poorest that are in greatest need. 
 

1. Economic dependence and volatility - Relying heavily on tourism makes LICs and MICs vulnerable to external shocks such as pandemics, natural disasters and geopolitical tensions. The COVID-19 pandemic devastated tourism-dependent economies, especially SIDS, where travel bans and lockdowns caused unprecedented economic contractions. Such dependence also diverts attention from the need for more sustainable economic diversification. 
2. Limited local benefit - Tourism revenues often do not stay in the local economy. Foreign-owned resorts, airlines and tour operators may repatriate profits, leaving only low-wage jobs for locals.  This phenomenon, known as “leakage,” reduces the net benefits of tourism. In some LICs and MICs, this leakage can be as high as 80 percent. 
3. Environmental degradation - Tourism can often put pressure on fragile ecosystems, especially in small islands where space and resources are limited. Overdevelopment, waste generation, coral reef damage from cruise ships and increased freshwater use are common issues. Unregulated tourism has contributed to beach erosion and pollution in destinations such as Bali and the Caribbean. 
4. Social and cultural disruption - Mass tourism can lead to the commodification of culture, the erosion of traditional lifestyles and rising inequality. In some regions, the influx of tourists has caused inflation, land displacement and increased real estate prices, pushing locals out of their communities. Cultural performances and rituals may be altered or performed solely for tourist consumption, leading to loss of authenticity. 
5. Infrastructure strain and over-tourism - In popular destinations, infrastructure may not be able to cope well with the seasonal influx of tourists (Venice is a prime example). Overcrowded transport systems, water shortages and strained health services can degrade the quality of life for residents. SIDS with limited land and resources are particularly vulnerable to these pressures. The impact on essential infrastructure can hit the local population severely with even basic supplies becoming increasingly scarce and unaffordable. 

In conclusion 

Tourism in LICs, MICs and SIDS offers a powerful tool for economic advancement and cultural promotion – if developed responsibly. However, without careful planning and regulation, its benefits can be undermined by environmental harm, social disruption and economic vulnerabilities. A sustainable tourism strategy – one that emphasizes community participation, environmental stewardship and economic inclusivity – is essential for maximizing the positive impacts of tourism while minimizing its negative effects. While this may sound obvious, it is more difficult to deliver in what are already fragile and weak countries. 

Why develop tourism in low-income countries? 

Charting a path of sustainable development 

Despite challenges, tourism remains a highly attractive development option for many LICs for several key reasons. 

Limited alternatives: 

Many LICs lack the capital, infrastructure or natural resources to develop large-scale manufacturing or extractive industries. Tourism, especially nature-based or cultural options, can generate income with relatively low initial investment. 

Foreign exchange and job creation: 

Tourism is often one of the fastest ways to earn foreign currency and create jobs, especially for women and youth. In many cases, it provides employment in areas where few alternatives exist. 

Leverage of natural and cultural assets: 

Many LICs, MICs and SIDS possess unique attractions – pristine beaches, biodiversity and rich cultural traditions – that are difficult for other countries to replicate. Tourism allows them to monetize these assets without depleting them, at least in theory. 

Development catalyst: 

Tourism can trigger broader economic activity, encouraging investment in infrastructure, small businesses and even governance reforms when tourism becomes a national priority. 

Do the disadvantages outweigh the advantages? 

Not necessarily – but it depends on how tourism is managed. The disadvantages of tourism, such as environmental degradation, economic leakage and cultural disruption tend to occur when tourism is: 

• Poorly planned (e.g., lack of zoning or environmental protection). 
• Overly relied on (with little economic diversification or spillovers). 
• Dominated by foreign entities (limiting local benefits and increasing leakage). 
• Not community-inclusive (excluding locals from decision-making or profit sharing). 

In contrast, well-managed, community-based and sustainable tourism can generate net positive outcomes, especially if profits are reinvested in local infrastructure, education and environmental protection. 

Is tourism really beneficial? 

Tourism can be genuinely beneficial, but it is not a silver bullet to the development challenges that many LICs face. It must offer many, often competing, benefits in sometimes complex settings amid a backdrop of entrenched poverty, joblessness and deprivation. For this tourism has to be: 
 

• Strategically developed to ensure long-term resilience and benefit-sharing. 
• Complemented by other sectors (like agriculture, education and manufacturing) to avoid overdependence. 
• Monitored for sustainability, including caps on tourist numbers and robust environmental regulations. 

For example, countries like Costa Rica and Bhutan have used tourism as a development tool while enforcing strict sustainability measures. On the other hand, overtourism in places like Thailand or Bali has highlighted the dangers of unchecked growth. 

The bottom line is: Tourism in low-income countries is a double-edged sword. It can drive growth and opportunity – or exacerbate inequality and environmental harm. Its success depends, unsurprisingly, on how it is planned, managed and integrated into a broader development strategy. 

Examples of low- and middle-income destinations affected by over-tourism 

• Cambodia: Angkor Watt 
• Peru: Machu Picchu 
• Philippines: Boracay 
• Thailand: Koh Phi Phi, Koh Samui, Phuket 
• Nepal: Mount Everest 
• Pacific Ocean: Cook Islands, Fiji and parts of French Polynesia 
• Caribbean: Aruba, Dominica, Jamaica and Saint Lucia 
• Indian Ocean: Maldives, Mauritius, Mayotte, Réunion, Seychelles 

Examples of advanced economy destinations affected by over-tourism 

• Spain: Barcelona, Ibiza, Mallorca 
• Croatia: Dubrovnik 
• Italy: Rome, Venice 
• Netherlands: Amsterdam 
• Greece: Santorini
• Iceland: Reykjavik 

Tourism in the Global South: A tale of two destinations 

A comparative look at contrasting approaches to tourism development. Phuket and Costa Rica offer contrasting outcomes – both countries are in the same income bracket, but the approach to tourism makes the critical difference 

Phuket, Thailand – The costs of over-tourism 

Country context: 

Thailand is a lower-middle-income country. Phuket is one of its most popular tourist destinations, drawing millions annually. 

Tourism strategy: 

• Focused on mass tourism targeting international travelers, especially from Australia, China and Europe. 
• Rapid, large-scale development of hotels, resorts and nightlife infrastructure. 
• Weak enforcement of zoning laws and environmental protections. 

Outcomes: 

Tourism generates a large share of Thailand’s economy, supporting jobs and infrastructure. However, negative impacts include: 

• Environmental degradation (coral reef damage, water scarcity, plastic pollution). 
• Traffic congestion and overburdened infrastructure. 
• Loss of cultural authenticity and local resentment in some communities. 
• Economic leakage – significant profits flow to foreign investors and large hotel chains. 

Key lessons: 

• Rapid, unregulated tourism growth can harm both the environment and local communities. 
• Over-tourism can reduce quality of life for residents and damage the tourist experience. 
• Economic gains are often unevenly distributed, exacerbating inequality. 

Costa Rica – A model of sustainable tourism 

Country context: 

Costa Rica is a middle-income country in Central America with abundant biodiversity and a strong commitment to environmental protection. 

Tourism strategy: 

• Emphasized ecotourism and nature-based tourism rather than mass tourism. 
• Invested in protected areas – over 25 percent of the country’s land is under conservation. 
• Encouraged local ownership of tourism services such as ecolodges, guided tours and farms. 
• Promoted education and training to develop human capital in tourism and conservation. 

Outcomes: 

Tourism accounts for around 6–8 percent of GDP and employs more than 200,000 people. 

• Significant foreign exchange earnings while maintaining a strong environmental record. 
• Attracted higher-spending tourists with lower volumes – minimizing overcrowding. 
• Globally recognized as a leader in sustainable tourism and green growth.

Key lessons: 

• Environmental conservation can coexist with economic development. 
• Community involvement is crucial – locals benefit directly and support conservation efforts. 
• Policy consistency and government support make a huge difference.