The major component of Gross Domestic Product (GDP) is consumption, which is driven by demand for goods and services. One effect of tourism on GDP is that tourism affects the economy through the provision of employment. The main effect of tourism on GDP is the fact that tourism boosts the demand for goods and services. Such an increase in the consumption level increases the activity on the market and consequently, increases the GDP level. Not all effects of tourism are positive though, as it can also lead to leakages, especially in smaller areas.
Any area that has a high level of tourist-related activities creates a lot of employment opportunities for the local population. Hotels, amusement parks, tourist attractions and other such places need people to provide the necessary services. Since increases and decreases in employment affect GDP levels by influencing the spending habits of people, the employment provided through tourism has a positive effect on GDP. People who are employed have the income to spend and an increased level of consumption is a consequence of tourism on GDP.
In the area of tourist expenditure, the effect of tourism on GDP can be seen in the manner in which the demand by tourists for services affects the GDP level of a stated area. Tourists spend money on plane tickets, cruise ship fares, restaurants and a wide variety of other services. The impact of tourism is such that some economies are partly sustained by tourism and its related factors. In these economies, tourist consumption of goods and services make up a considerable portion of the total annual expenditure.
Effects of tourism are also evident in the way in which new services and goods are constantly added to the existing ones in order to satisfy tourist demand. For instance, some small industries, especially crafts, are a direct result of tourist demand for souvenirs and other memorabilia or keepsakes. Some of these industries would not survive without the patronage of tourists who buy such artifacts and items to take with them when they return home. In some areas where the tourist trade is seasonal, these industries may only function for the period when tourism is fully active. As such, the souvenir makers may have other sources of income and only depend on the tourist trade as a part-time source of income.
One negative effect of tourism on GDP is in the area of leakages, as is common in smaller, underdeveloped countries. This usually occurs when the majority of the tourist facilities are owned and managed by foreigners. Examples of such facilities include airlines, accommodations and other services. In these instances, the leakages refer to the fact that the money earned from tourism is usually transferred to external bank accounts and does not significantly boost the local economy or GDP.