Leakage occurs through six different mechanisms. It is an intrinsic component of international tourism and thus is present in every country, to widely varying degrees.
Goods and services
Many countries must purchase goods and services to satisfy their visitors. This includes the cost of raw materials used to make tourism-related goods, such as souvenirs. For starting tourism industries, this is a significant problem, as some countries must import as much as 50% of tourism-related products.
Some less economically developed countries do not have the domestic ability to build tourism-related infrastructure (hotels, airports, etc.). The cost of such infrastructure is then leaked out of the country.
Foreign factors of production
Smaller countries often require foreign investment to start their tourism industry. Thus, profits from tourism may be lost to foreign investors. In addition, travel agents outside of the destination country remove money from that market as well.
Many countries spend considerable sums of money for advertisements and publicity. Maintaining a presence abroad may increase the volume of tourists to a country but also represent a considerable loss of money to foreign markets.
Many foreign companies manipulate their pricing to reduce taxes and other duties. In smaller or less developed countries, where many tourism-related companies may be foreign owned, this can represent a substantial loss of income.
Countries with a small tourism industry may have to give tax exemptions or other offers to increase foreign investment. While this may enlarge the tourism industry there, it must be taken into account as an instrument of income loss.
A study of tourism 'leakage' in Thailand estimated that 70% of all money spent by tourists ended up leaving Thailand (via...
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