economic impact of tourism case study

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• Published: 10 September 2024

When urban poverty becomes a tourist attraction: a systematic review of slum tourism research

• Tianhan Gui   ORCID: orcid.org/0000-0001-6069-3046 1 &
• Wei Zhong 1  

Humanities and Social Sciences Communications volume  11 , Article number:  1178 ( 2024 ) Cite this article

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• Business and management

Over the last two decades, the phenomenon of “slum tourism” and its academic exploration have seen considerable growth. This study presents a systematic literature review of 122 peer-reviewed journal articles, employing a combined approach of bibliometric and content analysis. Our review highlights prominent authors and journals in this domain, revealing that the most cited journals usually focus on tourism studies or geography/urban studies. This reflects a confluence of travel motivations and urban complexities within slum tourism. Through keyword co-occurrence analysis, we identified three primary research areas: the touristic transformation of urban informal settlements, the depiction and valorization of urban poverty, and the socio-economic impacts of slum tourism. This study not only maps the current landscape of research in this area but also identifies existing gaps. It suggests that the economic, social, and cultural effects of slum tourism are areas that require more in-depth investigation in future research endeavors.

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Introduction.

“Slums” are defined by UN-Habitat ( 2006 ) as underdeveloped urban areas lacking in a durable housing, adequate living space, safe water access, sanitation, and tenure security. Emerging from urban growth disparities, these informal settlements have proliferated since the latter half of the 20th century, especially in the Global South’s cities. Despite progress in urban planning and poverty reduction, UN-Habitat ( 2020 ) reports that over a billion people, with 80% in developing regions, still live in such conditions.

Slums undeniably “represent one of the most enduring faces of poverty, inequality, exclusion and deprivation” (UN-Habitat, 2020 , p. 25), necessitating policy intervention. However, the term “slum” is controversial among scholars as it often carries negative connotations, conflating poor housing conditions with the identities of residents (Gilbert, 2007 ). Beyond poverty and disease, it suggests crime and immorality, contributing to a narrative of fear and fascination (Davis, 2006 ; Mayne, 2017 ).

Recent decades have seen a surge in “slum tours” in the Global South, attracting tourists from the affluent North. Driven by complex motives that “consist of a mix of adventurous inquiry and humanitarian ambitions” (Dürr, 2012b , p. 707), tourists from the affluent North desire to glimpse “the other side of the world” (Steinbrink, 2012 , p. 232). This trend has turned guided tours in informal settlements into a booming business in cities like Mumbai, Rio de Janeiro, Cape Town, and Nairobi, drawing approximately one million tourists annually (Frenzel, 2016 ).

Modern slum tourism has deep historical roots, originating as “slumming” in Victorian England and early 20th-century America. Rapid urbanization in cities like London and New York created neglected areas, which, to middle and upper-class observers, represented a mysterious and chaotic “other world” (Steinbrink, 2012 ). This perception of danger and uncivilization paradoxically attracted bourgeois curiosity (Frenzel et al. 2015 ).

By the late 1970s, with the surge in international tourism, this localized “slumming” transformed into a global phenomenon. Affluent residents from the Global North began exploring underprivileged urban pockets in the Global South, making these areas tourism hotspots (Freire-Medeiros, 2009 ; Iqani, 2016 ). This trend marked the beginning of modern slum tourism, a practice that took a significant turn in the 1990s in South Africa. Initially focusing on anti-apartheid landmarks in townships like Soweto, Johannesburg (Steinbrink, 2012 ), these tours diversified to other cities, including Rio de Janeiro, Mumbai, and Manila (Frenzel et al. 2015 ). The once sporadic visits to informal settlements have now metamorphosed into well-orchestrated tours, often recommended by travel guidebooks. Today’s travelers can dine at local eateries, visit schools, interact with residents, or even step inside their homes (Frenzel, 2017 ; Frenzel and Blakeman, 2015 ). The industry has professionalized, with cities in the Global South attracting tourists mainly from the United Kingdom, United States, Germany, and Scandinavia (Frenzel, 2012 ; Frenzel and Blakeman, 2015 ; Steinbrink, 2012 ).

The burgeoning interest in slum tourism has sparked significant scholarly discourse, particularly in the new millennium. Research in this realm predominantly orbits around the ethical implications of such tourism, its role in mitigating poverty, and the duties of governing bodies in these scenarios. Slum tourism research encompasses various disciplines, including urban studies, tourism and hospitality, and human geography, with a significant proliferation of publications in recent years.

The surge in research has also led to several evaluative studies scrutinizing the breadth and depth of the subject. Frenzel’s ( 2013 ) thematic review, for instance, probed the nexus between slum tourism and poverty alleviation. Given that most slum tours proclaim poverty alleviation as their core intent, Frenzel’s inquiry into the intersection of this mission with tourism was insightful. He also championed the need for a rigorous exploration of the multifaceted valorization of poverty within tourism dynamics. A more expansive review by Frenzel et al. ( 2015 ) delved into various research focuses like the evolution of slum tourism, tourist experiences, operational aspects, economic implications, and so on. Their assessment underscored existing research voids, emphasizing the necessity for more nuanced, comparative studies. Tzanelli ( 2018 ) examined the socio-cultural and political drivers behind tourists’ inclinations towards informal settlements, critically analyzing the epistemological frameworks employed by scholars.

While these reviews have significantly sketched the contours of the discipline, many leaned heavily on conventional literature review techniques—predicated on selected, and at times, circumscribed resources (Petticrew and Roberts, 2008 ). Such manual methodologies, albeit insightful, are prone to biases “during the identification, selection, and synthesis of included studies” (Haddaway et al. 2015 , p. 1956). A systematic literature review, which adheres to rigorous protocols and curtails subjective inclinations, would be more enriching. Such a methodological shift not only offers a panoramic view of pivotal research arguments and deliberations but also illuminates evolving trends and perspectives. The surge in slum tourism literature recently underscores its dynamic nature, necessitating a renewed scrutiny of nascent discussions eluding preceding reviews.

Addressing this research exigency, our current endeavor undertakes a comprehensive examination of a gamut of articles illuminating diverse research angles on slum tourism. Employing both bibliometric and qualitative content analysis techniques, our study dissects 122 journal articles published over the past twenty years. We endeavor to spotlight seminal authors and journals, delineate prevailing themes in slum tourism studies, and carve out prospective trajectories for forthcoming research endeavors.

Methodology

Search process and sample selection.

A systematic review requires researchers to thoroughly examine all existing studies in a certain research area. This ensures a replicable, scientific, and transparent approach with minimal bias (Denyer and Tranfield, 2009 ). We adopt the “Preferred Reporting Items for Systematic Reviews and Meta-Analysis” (PRISMA) guideline (Moher et al. 2009 ) to identify eligible articles. The screening process is presented in Fig. 1 . We consulted an advanced keyword search on Google Scholar to retrieve literature on slum tourism. We chose Google Scholar because it provides broader access to a diverse range of scholarly articles, including those from various regions and disciplines that may not be indexed in databases like Web of Science or Scopus. Furthermore, since this study aims to review research articles on slum tourism, which is pertinent in the Global South, many journals or articles published or authored in the Global South are not indexed in Web of Science or Scopus but can be found on Google Scholar. This accessibility is vital for ensuring the inclusion of relevant studies that reflect the diverse contexts of slum tourism.

The systematic workflow and results.

For our subject search, we used the keywords “slum tourism.” We consciously omitted country-specific terms like barrios, township, and favela to prevent a regional bias (Baffoe and Kintrea, 2023 ). Google Scholar Advanced Search provides the choice to locate keywords either “in the title of the article” or “anywhere in the article.” We chose the latter, ensuring the inclusion of articles that might employ regional terms synonymous with “slum” in their titles. This approach also considered the potential cross-referencing of slum tourism literature in these articles. Conducted in August 2023 without time constraints, our search yielded 2690 materials.

To uphold the literature’s quality, only peer-reviewed scientific articles were chosen, excluding “grey literatures” such as reports, theses, conference proceedings, and other similar outputs. Books and book chapters were not incorporated into our review because our focus extended to trends in slum tourism research. The accelerated pace of academic publishing in journals, as compared to the longer timelines associated with books, means they often house the most current findings and trends. Utilizing a bibliometric analysis approach, we found the standardized structure of journal articles particularly beneficial, allowing for a more straightforward process in extracting, comparing, and synthesizing data. Books and their chapters, given their varied formats, might not always provide this level of consistency. Recognizing that a systematic review cannot encompass all languages, we confined our study to English-written articles.

After the initial screening, 148 articles closely related to slum tourism were identified. Our perspective on slum tourism aligns with Frenzel’s ( 2018 , p. 51) definition, describing it as “tourism where poverty and associated signifiers become central themes and (part of the) attraction of the visited destination.” Upon a thorough review of the full texts, it became apparent that some articles, while mentioning “slum tourism,” did not primarily focus on it. For instance, the work of Jones and Sanyal ( 2015 ) discusses the portrayal of Dharavi—India and Asia’s largest informal settlement—in slum tours, arts, and documentaries. Although their article addresses how Dharavi is represented in slum tours, its primary focus is on the depiction of informal settlements and urban poverty across various media, not slum tourism per se. Consequently, this article was excluded from our dataset. We also eliminated editorials, short commentaries, research notes, and prior literature reviews. This filtering narrowed our selection to 107 peer-reviewed articles. An exhaustive examination of their references added another 15 articles, giving a total of 122 articles. Figure 1 visualizes the selection process.

Data analysis

This study utilized both bibliometric and qualitative content analyses. Bibliometric analysis is crucial for identifying both established and emerging research themes as well as influential authors, key studies, and prominent journals (Hajek et al. 2022 ). We employed VOSviewer, a leading bibliometric analysis software, to undertake co-citation and keyword co-occurrence analyses, examining slum tourism research. Co-citation analysis pinpoints influential authors, studies, and journals, leveraging citations as pivotal indicators of scientific impact (De Bellis, 2009 ). Meanwhile, keyword co-occurrence analysis highlights prominent keywords and their relationships, signposting research field hotspots (Wang and Yang, 2019 ).

Augmenting the bibliometric approach, our qualitative content analysis delved deeper into the primary themes of slum tourism research. The keyword co-occurrence analysis supplied a broad view of research themes and trending topics. Emerging nodes and clusters helped pinpoint dominant research themes. By meticulously analyzing each article’s content, we executed a critical review of every theme. We also broached prospective research trajectories in the article’s conclusion.

Overview of slum tourism research

Figure 2 illustrates the evolving research landscape of slum tourism. The journey began in 2004 with two seminal papers by Kaplan ( 2004 ) and Rogerson ( 2004 ). Both delved into Johannesburg’s township tourism, emphasizing tourism’s potential in poverty mitigation and the region’s economic upliftment. Post-2004, the domain attracted escalating scholarly interest, evidenced by a notable publication upswing from 2012 onward.

Publishing trends of slum tourism research.

Two pivotal discursive events in Bristol (2010) and Potsdam (2014) further catalyzed the field’s evolution. Gathering global experts on slum tourism, these events spurred foundational texts that have since informed the discipline. The post-Bristol momentum produced a special Tourism Geographies issue in 2012, curated by Frenzel and Koens. Successive publications, like the “Slum Tourism” special issue of Die Erde 144 (2) in 2013, and the themed “Slum Tourism” issue of Tourism Review International in 2015, further cemented the field’s prominence. Undoubtedly, these seminal conferences and publications have been instrumental in surging scholarly endeavors in slum tourism research.

We conducted a co-citation analysis to pinpoint the leading authors and journals in the realm of slum tourism research. A co-citation refers to the simultaneous citation of two documents (Small, 1973 ). Such analysis aids scholars in organizing scientific literature and grasping the evolution of specific research domains (Surwase et al. 2011 ).

Figure 3 illustrates the outcomes of our author co-citation analysis. We established a threshold of 40 citations to identify the most influential authors within our dataset of 4229 authors. Only 11 authors met this threshold, allowing for a focused examination of the core contributors in the field. Their significant scholarly impact is reflected by their extensive citations, with node size in the visualization representing co-citation strength. Rogerson, Frenzel, and Steinbrink emerged as the most frequently cited authors, with the highest link strengths of 3978, 3173, and 2734, respectively. Rogerson’s work delved into the economic ramifications of tourism in South African townships, highlighting the part slum tourism plays in poverty reduction and sustainable community economic growth (Booyens and Rogerson, 2019 a, 2019b ; Rogerson, 2014 ). He also discussed urban tourism’s influence on small and medium-sized enterprises (Rogerson, 2004 , 2008 ). In contrast, Frenzel and Steinbrink examined the commercialization of urban informal settlements and the portrayal and appreciation of poverty (Frenzel, 2017 ; Frenzel and Blakeman, 2015 ; Steinbrink, 2012 , 2013 ).

Author co-citation network.

Other notable authors in this field include Freire-Medeiros, who discussed the transformation of Brazilian favelas into tourist attractions (Freire-Medeiros et al. 2013 ; Freire-Medeiros, 2007 , 2009 , 2011 ), Koens, who probed the growth of small and medium-sized businesses in South African townships (Koens and Thomas, 2015 , 2016 ) and local perceptions of slum tourism in India (Slikker and Koens, 2015 ), and Booyens, who primarily focused on responsible tourism in South African townships (Booyens, 2010 ; Booyens and Rogerson, 2019b , 2018). Rolfes also made a significant contribution by studying the ethical aspects of slum tourism (Burgold and Rolfes, 2013 ; Rolfes, 2010 ).

Intriguingly, although not a slum tourism specialist, Urry stands among the eleven most-cited authors. He is renowned for introducing “the tourist gaze” concept (Urry, 1990 ), suggesting that tourist experiences and choices are more influenced by the tourism industry, societal norms, and cultural factors than by personal autonomy. This theory offers a crucial framework for understanding how poverty is portrayed in slum tourism and the dynamics between tourists and local residents.

Figure 4 presents the map of journal co-citations, illuminating the academic areas focused on the topic of “slum tourism.” A journal co-citation analysis, conducted with a threshold of 40 citations, identified 11 key journals from a pool of 3013 in our dataset, underscoring their central roles in the discourse of the field. Notably, the Annals of Tourism Research occupies a central position on the map with the highest link strength of 2608, highlighting its prominence as the most-cited journal in slum tourism research. These journals are categorized into two primary clusters: tourism studies and geography/urban studies. This categorization reflects the dual scholarly interest in slum tourism, which intertwines travel motivations with the complexities of urban environments. On one hand, tourism researchers probe the allure of these regions, the ensuing cultural interactions, and the ethical debates surrounding poverty as an attraction. Conversely, geography and urban studies scholars explore the spatial structures of informal settlements, underlying socio-economic drivers, and the reciprocal impact between tourism and urban evolution. Collectively, these disciplines provide a nuanced view of slum tourism’s multifaceted nature. Notably, Development Southern Africa does not align strictly with these categories, but as a multidisciplinary journal emphasizing policy and practice in Southern Africa—a hub for modern slum tourism—it garners frequent citations.

Journal co-citation network.

After meticulously reviewing the 122 publications, we pinpointed the locations that are focal points for slum tourism research. As presented in Table 1 , South Africa, India, and Brazil emerge as the most extensively researched countries in this domain. They are closely followed by Kenya, Mexico, Colombia, Egypt, and Indonesia.

Township tourism in South Africa, deeply rooted in the country’s complex history, is a significant topic in slum tourism research. This form of tourism, which emerged in post-apartheid South Africa (Steinbrink, 2012 ), focuses on areas historically designated as “black only” zones, where disparities still exist (Iqani, 2016 ). Originating in Soweto, Johannesburg, it has since spread to other major cities. The 2010 FIFA World Cup, hosted by South Africa, notably boosted its popularity (Marschall, 2013 ). Today, Cape Town is a key destination for township tourism, with townships like Langa and Khayelitsha attracting tourists due to their historical significance (Rolfes, 2010 ).

Similar to South Africa, favela tourism in Brazil has political roots. These favelas, initially informal settlements for the formerly enslaved (Iqani, 2016 ), gained international attention after the 1992 Earth Summit, when delegates visited Rio de Janeiro’s favelas (Frenzel, 2012 ). Their prominence increased further during the 2014 FIFA World Cup and the 2016 Olympics (Steinbrink, 2013 ). Despite their cultural richness, favelas face challenges like crime and drug trafficking (Freire-Medeiros, 2009 ). Rio’s favelas, especially Rocinha and Santa Marta, attract numerous tourists each year (Frenzel and Blakeman, 2015 ).

In India, the scenario of slum tourism is notably different, with Mumbai’s Dharavi, one of the world’s largest informal settlement, being a key focus of India-specific studies. Other informal settlements in cities like Kolkata and Delhi have also attracted scholarly attention (Holst, 2015 ; Sen, 2008 ). These informal settlements are characterized by their micro-industries and recycling efforts, showcasing the resilience and entrepreneurial spirit of the residents (Gupta, 2016 ). Although a relatively new trend compared to its counterparts, India’s slum tourism industry has burgeoned, spawning numerous tour operators (Frenzel and Blakeman, 2015 ).

Over time, slum tourism has gained traction, spreading to nations across the Global South, including Kenya, Colombia, Mexico, Egypt, and the Philippines. In our study, while most articles were location-specific, ten adopted a holistic approach, discussing the overarching theme of slum tourism.

Prominent areas of slum tourism research

We conducted a keyword co-occurrence analysis on our slum tourism research dataset to identify and visualize the most significant themes by examining the frequency and relationships of keywords. This method facilitated the identification of central research clusters and thematic hotspots within the topic. Figure 5 illustrates the network of keywords that frequently co-occur in slum tourism studies. To refine our data, we consolidated similar keywords, for example, pairing “township” with “townships” and “developing countries” with “developing world.” For this analysis, we set a threshold to include keywords that appeared at least three times, leading to the selection of 44 out of 322 keywords, thereby emphasizing their significance within the field. In the network, each node represents a keyword; larger nodes indicate higher frequencies of occurrence. Our analysis revealed six distinct clusters, each differentiated by a unique color.

Network visualization of the keywords co-occurrence.

The red cluster focuses on “slum tourism,” examining the development of tourism in informal settlements and its wide-ranging socio-economic impacts. This cluster covers aspects such as “branding” and the role of “tour guides,” and emphasizes key socio-economic factors including “residents’ perceptions” and “poverty alleviation.” Simultaneously, the green cluster, highlighting terms such as “township tourism” and “economic development,” shifts focus to the growth of local, often small-to-medium-sized, tourism businesses, particularly spotlighting township tourism in South Africa. Meanwhile, the light blue cluster examines the impact of slum tourism on local communities, with a special focus on “community-based tourism” and favela tourism in Brazil. The yellow cluster delves into the portrayal of poverty as a key draw in slum tourism, questioning its classification as “poverty tourism” and exploring the shift towards more ethical, “pro-poor,” and responsible tourism practices. Concurrently, the purple cluster critically examines the portrayal and perception of poverty in slum tourism, focusing on tourist perspectives influenced by the “tourist gaze” and social media. Lastly, the dark blue cluster analyzes how globalization and rising consumer culture have spurred the growth of slum tourism, integrating themes like “globalization,” “space,” and “consumption,” and underscoring poverty’s central role in this phenomenon.

In our thematic analysis of publications, we integrated clusters with similar themes. The red, green, yellow, and light blue clusters, which focus on the socio-economic impacts of slum tourism on local communities, were merged. The red and dark blue clusters, addressing the transformation of urban informal settlements into tourist destinations and their driving factors, were also combined into a single theme. Furthermore, the purple and yellow clusters, centered on the portrayal and perception of poverty in slum tourism, were grouped together. Our review systematically examines these unified themes, as illustrated in Table 2 .

Touristic transformation of urban informal settlements

The transformation of urban informal settlements into tourist destinations has been extensively discussed in earlier literature on slum tourism. This transformation hinges significantly on cultural and historical heritage. As previously mentioned, Brazil’s favelas and South Africa’s townships attracted visitors with political and cultural interests (Frenzel, 2012 ; Steinbrink, 2012 ). Gradually, with the globalization that stimulated global mobility and the rise of consumer culture, these locales became spaces of interaction, juxtaposing mobility and immobility on a global scale (Dürr, 2012a ). As many informal settlements in the Global South were represented in global media, they gained increasing touristic attention. For instance, after the success of the film “The City of God” in 2003, the number of foreign visitors to favelas in Rio grew significantly (Freire-Medeiros, 2011 ). As Freire-Medeiros ( 2009 , p. 582) mentioned in another article that tours in these informal settlements “are equally indebted to the phenomenon of circulation and consumption, at a global level, of the favela as a trademark.”

In the touristic transformation of informal settlements, policy plays a pivotal role. For instance, local governments in South Africa actively encouraged township tourism by creating museums, developing historical and political heritage sites, and promoting township upgrading programs (Booyens, 2010 ; Booyens and Rogerson, 2019b ; Marschall, 2013 ). In Brazil, favela tourism served as a means to enhance its image in the context of preparations for mega-events in Rio, a strategy dubbed “Festifavelasation” (Steinbrink, 2013 ). South Africa pursued a similar path after securing the 2010 FIFA World Cup (Marschall, 2013 ). In Colombia, a policy known as “social urbanism” led Medellin, previously known for its drug barons and criminal activities, to undergo social and economic transformation, attracting both interest and tourists (Hernandez‐Garcia, 2013 ).

In analyzing our dataset’s articles, it is evident that slum tours primarily occur in well-known informal settlements of the Global South, such as Mumbai’s Dharavi, Rio de Janeiro’s Rocinha, and Johannesburg’s Soweto. These locations are preferred due to the factors previously mentioned. However, this growing industry often overlooks numerous lesser-known and more impoverished communities (Koens, 2012 ). Issues such as insufficient infrastructure, the absence of tourist attractions, and poor security hinder the growth of tourism in informal urban settlements. This situation is clearly seen in areas like Harare, Zimbabwe (Mukoroverwa and Chiutsi, 2018 ), and certain townships in Durban, South Africa (Chili, 2015 ).

A significant barrier is also the lack of awareness of pro-poor tourism in these lesser-known areas. Munyanyiwa et al.’s ( 2014 ) research in Harare’s townships revealed that many residents were unaware of township tourism, compounded by insufficient infrastructure and community involvement to support it. Moreover, residents were unsure of how to benefit from such initiatives, with historical tourism activities largely unknown to them. Similarly, Attaalla’s ( 2016 ) study in Egypt highlighted the minimal awareness of pro-poor tourism, the absence of a comprehensive government policy to develop this tourism type, and the scarcity of specialized Egyptian tour operators and travel agencies in the pro-poor tourism market. For successful tourism in these areas, it’s vital to enhance infrastructure, safety, and offer innovative tourism experiences (Mukoroverwa and Chiutsi, 2018 ). Additionally, improved information dissemination and increased stakeholder engagement are essential (Munyanyiwa et al. 2014 ).

The transition of informal settlements into tourist destinations brings several challenges. Notably, the commercialization of these marginalized areas can aestheticize deprivation and social inequality, turning them into themed spaces that reinforce stereotypes and maintain informal settlements as attractions shaped by tourist expectations (e.g. Altamirano, 2022b ; Dürr, 2012a ). Building on this point, Dürr et al. ( 2020 ) highlighted that marketing urban poverty and violence as a city brand could exacerbate existing inequalities. Research also shows that in many touristic informal settlements, local residents often do not fully engage with or benefit from tourism (Koens and Thomas, 2015 ; Marschall, 2013 ). Furthermore, public policies aimed at transforming these settlements sometimes lack consistency, creating insecurity among locals (Altamirano, 2022b ). Addressing these issues requires enhanced policies and increased community involvement in tourism, posing significant challenges for local governments.

Valorization and representation of urban poverty

In 2010, the term “poverty tourism” was recognized in slum tourism research, casting a spotlight on the intricate connection between poverty and this type of tourism (Rolfes, 2010 ). This tourism variant is not without controversy, interrogating the confluence of poverty, power, and ethical dilemmas (see Chhabra and Chowdhury, 2012 ; Korstanje, 2016 ; Outterson et al. 2011 ). This dynamic between the commodification of impoverished settlements and their portrayal within the tourism spectrum has ignited fervent academic debate.

Frenzel ( 2014 ) critically observed that within the paradigm of slum tourism, poverty transcends its role as a mere backdrop, ascending to the primary spectacle. Consequently, this leads to the commodification of urban impoverishment, turning it into a tourism commodity with tangible monetary value (Rolfes, 2010 ). Scholars have extensively dissected this juxtaposition. While some examine the framing, representation, and marketing dimensions (Dürr et al. 2020 ; Meschkank, 2011 ; Rolfes, 2010 ), others argued that poverty becomes romanticized, perceived more as a cultural artifact rather than an urgent societal issue (Crossley, 2012 ; Huysamen et al. 2020 ; Nisbett, 2017 ).

In this tapestry, both tourists and tour operators play pivotal roles in framing the narrative. Operators, tapping into the tourists’ quest for the “authenticity” embedded in the narratives of global urbanization, exert significant influence in shaping perceptions (Meschkank, 2012 ; Rolfes, 2010 ). Studies have observed that in an attempt to counteract the inherently negative perceptions surrounding informal settlements (Dyson, 2012 ), operators often position these spaces as beacons of hope, underlining the tenacity, optimism, and aspirations of the residents (Crossley, 2012 ; Dürr et al. 2020 ; Huysamen et al. 2020 ; Meschkank, 2011 ). Moreover, to navigate the moral complexities that tourists might grapple with, operators design their offerings as ethical enterprises, promising both enlightenment for the tourists and tangible economic upliftment for the communities (Muldoon and Mair, 2016 ; Nisbett, 2017 ).

However, such strategies face intellectual scrutiny for their potential to obfuscate the palpable suffering that underpins these urban landscapes. Several studies affirm that poverty dominates the observational narratives across tours in global cities from Mumbai to Rio de Janeiro (Crossley, 2012 ; Dürr et al. 2020 ; Meschkank, 2012 ). As Clini and Valančiūnas ( 2023 ) observed, such sanitized representations, while better than negative stereotypes, could unintentionally normalize the systemic inequalities associated with poverty. This approach not only risks reducing the perceived need for urgent poverty alleviation efforts but also may leave existing societal inequalities unchallenged. This has prompted critiques that label the phenomenon as commercial “voyeurism, and exploitation for commercial ends” (Burgold and Rolfes, 2013 , p. 162).

For tourists, their motivation often orbits around the pursuit of “authenticity” when they consider visiting informal settlements (see Clini and Valančiūnas, 2023 ; Crossley, 2012 ; Gupta, 2016 ; Meschkank, 2011 ; Steinbrink, 2012 ). Marketed as unvarnished encounters with reality, informal settlements are often depicted as bastions of culture, diversity, and authenticity (Frenzel et al. 2015 ). This category of slum tourism is, thus, situated within the broader realm of “reality tourism,” promising participatory experiences in socio-economically challenged urban landscapes (Wise et al. 2019 ). However, this approach, despite aligning with general tourism patterns, is not devoid of problems. The very essence of this touristic venture, which is to experience urban impoverishment, inherently establishes an imbalanced dynamic between tourists and inhabitants, leading to its characterization as a form of voyeurism. (Dürr et al. 2020 ; Meschkank, 2011 ).

In the last decade, slum tourism has diversified with new tours offered by locals and NGOs, aiming to challenge stereotypes and present a more complex picture of informal settlements. Frenzel ( 2014 ) noted that guides can empower communities by focusing on often-ignored aspects of these areas. While motivations vary, with some guides driven by profit and others by community welfare and resisting gentrification effects, the role of guides is crucial. Angelini’s ( 2020 ) examination of favela tours accentuated the nuanced challenges faced by these guides, as they attempt to strike a balance between authentic representation and the commodification of their environments. Further, Dürr et al. ( 2021 ) in their ethnographic study in Mexico City’s Tepito, showed how guides can positively portray deprived areas without depoliticizing them, contextualizing local achievements within city politics and using historical narratives to emphasize the area’s significance.

In the digital era, social media significantly influences the slum tourism narrative (Sarrica et al. 2021 ). The Internet is vital for operators to market and sell tours and provide information to potential travelers (Privitera, 2015 ). Many studies have analyzed slum tourism portrayals in online reviews and media, exploring how these areas and experiences are represented (Huysamen et al. 2020 ; Nisbett, 2017 ; Sarrica et al. 2021 ; Shang et al. 2022 ; Wise et al. 2019 ). For instance, Nisbett ( 2017 ) highlighted concerns about reviews that often gloss over poverty’s complexities, focusing instead on the tours’ economic aspects. Similarly, Huysamen et al. ( 2020 ) observed that tourist narratives tend to paint these areas as “slums of hope,” ignoring the disparity between wealthy tourists and impoverished locals. Ekdale and Tuwei ( 2016 ) studied texts from Kibera visitors, noting that while tourists claim to gain authentic understanding of global inequality, their privileged perspective remains unexamined. These “ironic encounters” often reinforce global inequalities, serving more as self-validation for tourists than a true engagement with local challenges.

On the flip side, social media’s role in depicting informal settlements is not always reductive. Some academics posit that these platforms can provide a counter-narrative to skewed representations by offering avenues to disseminate a diverse array of authentic stories and perspectives (Sarrica et al. 2021 ). Crucially, social media can amplify local residents’ voices, allowing them to share concerns about slum tourism, including privacy, potential exploitation, and daily life disruptions (Crapolicchio et al. 2022 ). The digital era thus presents both opportunities and challenges for slum tourism, underscoring the need for ethical and respectful interactions that honor and authentically represent these communities’ narratives.

Social and economic impact of slum tourism to local communities

The economic and social impacts of tourism in these informal settlements are prominent themes in slum tourism research. Across various countries, including Egypt, South Africa, Brazil, and Indonesia, tourism has spurred urban development and improved living conditions in informal settlements (Anyumba, 2017 ; Booyens and Rogerson, 2019a ; Mekawy, 2012 ; Sulistyaningsih et al. 2022 ; Torres, 2012 ). Developments like aerial cable cars in Brazil’s favelas and minibus-taxis in South African townships have evolved local transportation systems (Freire-Medeiros and Name, 2017 ; Rietjens et al. 2006 ). These advancements facilitate social transformation, such as increased security investments in Brazilian favelas (Freire-Medeiros et al. 2013 ) and “social urbanism” in Colombian barrios, integrating marginalized communities and improving education and security (Hernandez‐Garcia, 2013 ). A comparative study of the touristification of Gamcheon Culture Village (Busan, South Korea) and Comuna 13 (Medellin, Colombia) highlighted that effective governance can create community networks and stakeholder partnerships, fostering entrepreneurial opportunities (Escalona and Oh, 2022 ).

Tourism holds potential as a means to reduce poverty by creating employment opportunities in impoverished urban areas (Aseye and Opoku, 2015 ; Cardoso et al. 2022 ; Paul, 2016 ). Slum tourism, in particular, fosters entrepreneurship, allowing residents to start their own tour companies or bed and breakfasts. However, challenges for local entrepreneurs include limited market access, stiff competition, low marketing budgets, poor business locations, and lack of support from established firms, often leading to the marginalization of smaller operators in a market dominated by larger companies (see Chili, 2018 ; Hikido, 2018 ; Mokoena and Liambo, 2023 ; Mtshali et al. 2017 ; Nemasetoni and Rogerson, 2005 ). Further, small business owners frequently lack essential education and marketing skills (see Leonard and Dladla, 2020 ; Letuka and Lebambo, 2022 ; Rogerson, 2004 ). Mokoena and Liambo ( 2023 ) observed that only a minority of entrepreneurs adopt competitive strategies in their businesses.

Scholars have also observed that the profits from slum tourism are insufficient for significant poverty alleviation (Freire-Medeiros, 2009 , 2012 ). Koen and Thomas’ study of South Africa townships ( 2015 ) highlighted the challenge to the idea that small business owners reinvest their profits locally for economic development. Successful entrepreneurs often leave their townships due to a lack of local ties, leading to economic benefits being concentrated among a small, predominantly male, privileged group, while marginalized groups’ businesses yield lower gains. Moreover, most slum tour companies depend heavily on foreign support, resulting in substantial economic leakage (Frenzel and Blakeman, 2015 ; Meschkank, 2012 ; Rolfes, 2010 ).

The social implications of slum tourism form a major focus in recent academic studies, particularly regarding how local residents perceive this tourism form. Surveys and interviews with inhabitants of informal settlements have uncovered a range of reactions, including positive, negative, skeptical, and indifferent attitudes toward slum tourism (Amo et al. 2019 ; Auala et al. 2019 ; Freire-Medeiros, 2012 ; Marschall, 2013 ; Slikker and Koens, 2015 ).

In Rio, Mumbai, and Nairobi, some studies reveal that residents feel embarrassed by slum tourism, as certain operators emphasize negative community aspects to cater to tourists seeking “real” poverty experiences, leading to privacy issues (Freire-Medeiros, 2012 ; Kieti and Magio, 2013 ; Slikker and Koens, 2015 ). Conversely, slum tourism is also viewed positively in many areas. Slikker and Koens’ ( 2015 ) study in Mumbai and Amo et al. ( 2019 ) research in Medellin found residents believe it counters negative stereotypes and raises community visibility. In Nairobi and Cape Town, locals welcome it as a source of income and jobs (Chege and Mwisukha, 2013 ; Potgieter et al. 2019 ). Additionally, Muldoon et al.’s South African studies suggest slum tourism empowers residents by bringing international attention to townships, giving them more control over their narratives and a sense of importance (Muldoon, 2020 ; Muldoon and Mair, 2022 ).

Indeed, the social impact of tourism is dualistic. As Altamirano ( 2022a ) pointed out, while tourism can establish new material and symbolic frameworks, providing residents with chances for counter-hegemonic actions, it does not uniformly support the cultural empowerment of impoverished communities. Instead, it can result in neoliberal development and increased surveillance. This underscores the necessity for thoughtful policymaking in slum tourism, advocating for policies that prioritize the well-being and cultural richness of communities over mere profit generation, particularly in environments marked by urban disparities and complex power dynamics.

Booyens and Rogerson ( 2019 b) suggested that slum tourism ought to function as a type of “creative tourism,” fostering solidarity and mutual understanding between tourists and local residents, stimulating economic growth in communities, and increasing awareness of the North-South disparity in the postcolonial context. The transition to pro-poor tourism heavily relies on effective policy implementation. Therefore, numerous scholars have advocated for policy instruments to enhance safety and infrastructure, and to facilitate effective coordination among various stakeholders, alongside strengthening institutional frameworks (e.g. Aseye and Opoku, 2015 ; Booyens, 2010 ; Chege and Mwisukha, 2013 ; Rusata et al. 2023 ).

Furthermore, the success of slum tourism largely depends on local community engagement (Duarte and Peters, 2012 ). Yet, in many cases, such as in India (Slikker and Koens, 2015 ), Kenya (Kieti and Magio, 2013 ), Brazil (Freire-Medeiros, 2012 ), and elsewhere, local residents’ participation is limited. Various factors contribute to this, including inadequate business knowledge and skills, and social and financial barriers (Dzikiti and Leonard, 2016 ; Hammad, 2021 ; Leonard and Dladla, 2020 ). Addressing this, researchers emphasize the need for tourism-specific training and resources for local entrepreneurs, particularly focusing on youth (Dzikiti and Leonard, 2016 ; Mbane and Ezeuduji, 2022 ; Nkemngu, 2014 ). To leverage slum tourism for community development, equipping locals with the skills and tools for effective tourism participation is crucial, though it remains a challenging goal.

Conclusion and future research agenda

Over the past two decades, “slum tourism” and its academic study have expanded significantly. Our systematic review of 122 peer-reviewed journal articles sheds light on key authors and journals in this field. The most cited journals typically specialize in tourism studies or geography/urban studies, underscoring the blend of travel motivations and urban complexities in slum tourism. Our findings show that South Africa, India, and Brazil are the most researched countries, with others like Kenya, Mexico, Colombia, Egypt, and Indonesia also being significant. The keyword co-occurrence analysis identified three primary research areas: the touristic transformation of urban informal settlements, the portrayal and valorization of urban poverty, and the socio-economic impacts of slum tourism. This study not only outlines the scope of current research but also points out gaps, suggesting that the economic, social, and cultural effects of slum tourism warrant further exploration in future studies.

The economic aspects of slum tourism, widely debated in academic circles, pose unanswered questions about the actual financial benefits for local residents and communities. Frenzel and Koens ( 2012 ) noted a lack of quantitative evaluations, leaving the impact of slum tours on poverty reduction and urban development uncertain. Existing research, primarily qualitative involving interviews, ethnography, media content analysis, and stakeholder surveys, fails to adequately measure the economic impact on informal settlements. Although studies like those by Chege and Mwisukha ( 2013 ) and Potgieter et al. ( 2019 ) indicated resident perceptions of slum tourism as a source of income and employment, these lack concrete statistical backing. The financial dynamics of slum tourism, including the economic leakage stemming from reliance on external and foreign support (Frenzel and Blakeman, 2015 ; Meschkank, 2012 ; Rolfes, 2010 ), warrant more in-depth investigation. Future research should focus on tracing profit distribution in slum tourism and assessing its real effects on the communities, considering the prominent role of local guides and their relationships with tour operators.

The intangible impacts of slum tourism, including social, political, and cultural aspects, are a fertile area for future research. Shifting focus to local residents’ views, recent studies have shown slum tourism’s broad influence beyond just economic factors, notably in changing perceptions of poverty. However, as Koens ( 2012 ) pointed out, evaluating these impacts is complex due to the deep social and historical contexts within these communities. Advocates for authentic local engagement, like Slikker and Koens ( 2015 ) and Freire-Medeiros ( 2012 ), emphasized the importance of giving local residents a voice. Muldoon’s research ( 2020 ; Muldoon and Mair, 2022 ) in South Africa demonstrates how township tourism allows locals to redefine their identities and interactions with tourists. On the other hand, Freire-Medeiros ( 2012 ) noted in Brazil’s Rocinha the possibility of residents altering narratives for tourist appeal. This highlights the need to integrate the genuine experiences of locals into slum tourism research to fully grasp its diverse impacts.

The potential for slum tourism to either reinforce or challenge existing power dynamics and stereotypes represents a dynamic area of ongoing debate, ripe for further theoretical exploration. Slum tourism is emblematic of neoliberal capitalist practices, where the lived experiences of marginalized communities are commodified and consumed predominantly by Western tourists. This pattern aligns with David Harvey’s concept of “accumulation by dispossession,” where the exploitation and aestheticization of poverty serve to reinforce global economic disparities (Harvey, 2003 ). By transforming informal settlements into tourist attractions, slum tourism becomes a mechanism of cultural commodification, packaging poverty-stricken environments for sale and perpetuating a global hierarchy that privileges affluent tourists while marginalizing local residents.

The representation of informal settlements within this tourism framework often involves selective storytelling, echoing Edward Said’s notion of “Orientalism.” This process portrays the “Other” in ways that reinforce Western superiority and exoticize non-Western realities, contributing to the perpetuation of stereotypes and obscuring the systemic causes of poverty (Said, 2003 ). Such portrayals often sanitize the harsh realities of poverty, presenting informal settlements as exotic and intriguing destinations, thus skewing the understanding of global inequalities and framing poverty more as a cultural artifact than an urgent social issue.

Conversely, slum tourism holds potential to challenge and subvert these entrenched power dynamics and stereotypes. When approached through the lens of ethical representation, it becomes a platform that amplifies marginalized voices and promotes more equitable narratives. This approach is deeply rooted in theories of participatory development and empowerment, which argue that local communities should be active agents in shaping their own narratives, rather than passive subjects (Dürr et al. 2021 ; Frenzel, 2014 ). Employing local guides and focusing on authentic narratives that highlight both the challenges and resilience of informal settlement residents can provide a counter-narrative to dominant discourses, promoting a more nuanced and respectful understanding of these communities.

The role of social media in slum tourism highlights the significance of digital globalization in shaping narratives. Social media platforms provide avenues for local residents to share their perspectives, thereby democratizing the discourse and challenging stereotypical representations (Sarrica et al. 2021 ). This aligns with the ethics of representation, advocating for portrayals that respect the dignity and agency of marginalized communities (Crapolicchio et al. 2022 ). By enabling a more participatory and inclusive approach, social media can help mitigate the voyeuristic tendencies of slum tourism and foster a more ethical engagement with these communities.

Another prominent takeaway from this systematic literature review is the observation that the practice, perception, and success of slum tourism vary significantly across different cultural and geographical contexts. In Brazil, for instance, the favelas of Rio de Janeiro have been transformed into tourist destinations, influenced not only by their portrayal in internationally acclaimed films but also by the mega-events hosted in the city. This phenomenon has led to a form of tourism that often celebrates the cultural vibrancy of these areas, despite underlying issues of poverty and inequality. Conversely, in India, Mumbai’s Dharavi is marketed as a hub of entrepreneurship and industry, attracting tourists more interested in the economic dynamics of informal settlement life than in cultural spectacle alone. These differences illustrate how local contexts shape the thematic emphasis of slum tours.

However, the ability to develop slum or pro-poor tourism is not uniformly distributed. Many areas lack the necessary infrastructure, adequate security, or appealing tourist attractions, which impedes their ability to attract and sustain tourism. For instance, some townships in Durban, South Africa, and informal settlements in Harare, Zimbabwe, contend with issues such as poor security and insufficient infrastructure, making them less appealing to tourists and challenging to market as destinations (Chili, 2015 ; Mukoroverwa and Chiutsi, 2018 ). This disparity highlights the uneven impacts of global tourism trends on local communities and points to the necessity for ethical and sustainable tourism practices in urban settings marked by significant socio-economic divides.

To enhance our understanding of slum tourism dynamics and to devise more effective interventions, it is crucial to undertake further comparative studies. These studies should delve into why certain areas are successful in developing tourism that benefits local communities while others falter, considering both global influences and local conditions. Such research is imperative for uncovering the potential of tourism as a tool for social and economic improvement in marginalized urban areas and contributes significantly to the broader discourse on globalization, urban inequality, and sustainable development.

In this vein, a pivotal area for future research is transforming “slum tourism” into a form of responsible tourism that transcends the poverty-centric narrative often associated with terms like “slum,” “township,” and “favela” (Burgold and Rolfes, 2013 ; Rolfes, 2010 ; Steinbrink et al. 2012 ). While it is valuable to highlight the cultural and historical aspects of these communities, such portrayals frequently overlook the entrenched structural inequality and violence that pervade these areas. Furthermore, tourism often concentrates only on well-known locations, ignoring the most impoverished and lesser-known settlements, thus raising questions about the applicability of sustainable development strategies in these marginalized areas (Frenzel, 2013 ). It is essential that future research explores how slum tourism can truly benefit residents and address broader socio-economic challenges, ensuring it evolves into a form of responsible tourism.

This shift towards responsible slum tourism necessitates a comprehensive emphasis on ethical considerations, community involvement, and sustainable economic benefits for local residents. Ethical considerations must encompass respect for the dignity and agency of the communities involved, eschewing exploitative practices that commodify poverty for tourist consumption. Community involvement is imperative, as it enables residents to influence how their neighborhoods are portrayed and ensure their central participation in both managing and benefiting from tourism initiatives. This might include training local guides, engaging residents in creating tour content, and allocating a substantial share of tourism revenues back into the community.

Furthermore, ensuring sustainable economic benefits for residents is fundamental to responsible slum tourism. This involves fostering tourism that generates reliable income opportunities for locals, such as through establishing small businesses or cooperative ventures tailored to the tourism industry. Potential enterprises could include local eateries, souvenir shops, and accommodation services, all managed and operated by community members. Investment in infrastructure improvements that support tourism activities and simultaneously enhance resident quality of life is also crucial. Additionally, it is essential to implement mechanisms to track the flow of financial benefits to ensure that the revenue generated by tourism is indeed benefiting the local communities as intended.

The data collection for this study, completed in August 2023, revealed a notable gap: the lack of research on the impact of the COVID pandemic on slum tourism, despite the pandemic lasting three years. The pandemic has disproportionately affected informal settlement dwellers, as evidenced by Seddiky et al. ( 2023 ). For instance, Bangkok’s informal settlement residents have suffered significant economic hardships (Pongutta et al. 2021 ), and containment measures have led to widespread business closures, impacting low-income, daily wage earners in impoverished communities (Solymári et al. 2022 ). This absence of academic focus on COVID’s specific impact on slum tourism marks a limitation in current literature. The pandemic’s disruption of travel presents an opportunity to reassess and develop more sustainable tourism practices that could benefit residents in impoverished areas.

Additionally, this study’s focus on slum tourism in the Global South overlooks the re-emerging field of slum or poverty tourism in the Global North. For instance, Burgold ( 2014 ) explored guided walking tours in Berlin-Neukölln, an area known for poverty and social issues, contrasting them with traditional tourism and highlighting their role in changing perceptions and aiding local residents’ societal integration. Similarly, “homeless experience” tours in cities like Toronto, London, Amsterdam, and Seattle offer insights into the lives of homeless individuals (Haven Toronto, 2018 ; Kassam, 2013 ). These tours, as controversial in the Global North as in the South, raise ethical concerns about commodifying poverty. Proponents see them as empathy-building, while critics view them as exploitative. The dynamics of poverty tours vary between developed and less developed countries, presenting a potential area for future comparative research.

“Slum tourism,” a relatively new research field, reflects the complexities of rapid urbanization and the North-South power dynamics in a globalized era. The current study offers a comprehensive, longitudinal perspective on slum tourism research, charting future directions for scholarly inquiry. It also provides valuable insights for practitioners to reassess the role of tourism in poverty alleviation within urban informal settlements in the Global South. For public policy, this research is instrumental in shaping strategies for urban development, poverty alleviation, and sustainable tourism, advocating for the integration of informal settlements into wider economic frameworks. Academically, it enriches the existing body of knowledge, spurring interdisciplinary research and delving into lesser-explored aspects of slum tourism. Additionally, by shedding light on the effects of tourism in these communities, the study promotes more informed, respectful, and responsible tourist behavior, encouraging travelers to adopt a more empathetic and culturally sensitive approach.

Data availability

The data supporting the findings of this study are available in an uploaded CSV file.

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• Published: 05 January 2021

The relationship between tourism and economic growth among BRICS countries: a panel cointegration analysis

• Haroon Rasool   ORCID: orcid.org/0000-0002-0083-4553 1 ,
• Shafat Maqbool 2 &
• Md. Tarique 1  

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Tourism has become the world’s third-largest export industry after fuels and chemicals, and ahead of food and automotive products. From last few years, there has been a great surge in international tourism, culminates to 7% share of World’s total exports in 2016. To this end, the study attempts to examine the relationship between inbound tourism, financial development and economic growth by using the panel data over the period 1995–2015 for five BRICS (Brazil, Russia, India, China and South Africa) countries. The results of panel ARDL cointegration test indicate that tourism, financial development and economic growth are cointegrated in the long run. Further, the Granger causality analysis demonstrates that the causality between inbound tourism and economic growth is bi-directional, thus validates the ‘feedback-hypothesis’ in BRICS countries. The study suggests that BRICS countries should promote favorable tourism policies to push up the economic growth and in turn economic growth will positively contribute to international tourism.

Introduction

World Tourism Day 2015 was celebrated around the theme ‘One Billion Tourists; One Billion Opportunities’ highlighting the transformative potential of one billion tourists. With more than one billion tourists traveling to an international destination every year, tourism has become a leading economic sector, contributing 9.8% of global GDP and represents 7% of the world’s total exports [ 59 ]. According to the World Tourism Organization, the year 2013 saw more than 1.087 billion Foreign Tourist Arrivals and US $1075 billion foreign tourism receipts. The contribution of travel and tourism to gross domestic product (GDP) is expected to reach 10.8% at the end of 2026 [ 61 ]. Representing more than just economic strength, these figures exemplify the vast potential of tourism, to address some of the world´s most pressing challenges, including socio-economic growth and inclusive development.

Developing countries are emerging as the important players, and increasingly aware of their economic potential. Once essentially excluded from the tourism industry, the developing world has now become its major growth area. These countries majorly rely on tourism for their foreign exchange reserves. For the world’s forty poorest countries, tourism is the second-most important source of foreign exchange after oil [ 37 ].

The BRICS (Brazil, Russia, India, China and South Africa) countries have emerged as a potential bloc in the developing countries which caters the major tourists from developed countries. Tourism becomes major focus at BRICS Xiamen Summit 2017 held in China. These countries have robust growth rate, and are focal destinations for global tourists. During 1990 to 2014, these countries stride from 11% of the world’s GDP to almost 30% [ 17 ]. Among BRICS countries, China is ranked as an important destination followed by Brazil, Russia, India and South Africa [ 60 ].

The importance of inbound tourism has grown exponentially, because of its growing contribution to the economic growth in the long run. It enhances economic growth by augmenting the foreign exchange reserves [ 38 ], stimulating investments in new infrastructure, human capital and increases competition [ 9 ], promoting industrial development [ 34 ], creates jobs and hence to increase income [ 34 ], inbound tourism also generates positive externalities [ 1 , 14 ] and finally, as economy grows, one can argue that growth in GDP could lead to further increase in international tourism [ 11 ].

The tourism-led growth hypothesis (TLGH) proposed by Balaguer and Cantavella-Jorda [ 3 ], states that expansion of international tourism activities exerts economic growth, hence offering a theoretical and empirical link between inbound tourism and economic growth. Theoretically, the TLGH was directly derived from the export-led growth hypothesis (ELGH) that postulates that economic growth can be generated not only by increasing the amount of labor and capital within the economy, but also by expanding exports.

The ‘new growth theory,’ developed by Balassa [ 4 ], suggests that export expansion can trigger economic growth, because it promotes specialization and raises factors productivity by increasing competition, creating positive externalities by advancing the dispersal of specialized information and abilities. Exports also enhance economic growth by increasing the level of investment. International tourism is considered as a non-standard type of export, as it indicates a source of receipts and consumption in situ. Given the difficulties in measuring tourism activity, the economic literature tends to focus on primary and manufactured product exports, hence neglecting this economic sector. Analogous to the ELGH, the TLGH analyses the possible temporal relationship between tourism and economic growth, both in the short and long run. The question is whether tourism activity leads to economic growth or, alternatively, economic expansion drives tourism growth, or indeed a bi-directional relationship exists between the two variables.

To further substantiate the nexus, the study will investigate the plausible linkages between economic growth and international tourism while considering the relative importance of financial development in the context of BRICS nations. Financial markets are considered a key factor in producing strong economic growth, because they contribute to economic efficiency by diverting financial funds from unproductive to productive uses. The origin of this role of financial development may is traced back to the seminal work of Schumpeter [ 50 ]. In his study, Schumpeter points out that the banking system is the crucial factor for economic growth due to its role in the allocation of savings, the encouragement of innovation, and the funding of productive investments. Early works, such as Goldsmith [ 18 ], McKinnon [ 39 ] and Shaw [ 51 ] put forward considerable evidence that financial development enhances growth performance of countries. The importance of financial development in BRICS economies is reflected by the establishment of the ‘New Development Bank’ aimed at financing infrastructure and sustainable development projects in these and other developing countries. To the best of the authors’ knowledge, no attempt has been made so far to investigate the long-run relationship Footnote 1 between tourism, financial development and economic growth in case of BRICS countries. Hence, the present study is an attempt to fill the gap in the existing literature.

Review of past studies

From last few decades there has been a surge in the research related to tourism-growth nexus. The importance of growth and development and its determinants has been studied extensively both in developed and developing countries. Extant literature has recognized tourism as an important determinant of economic growth. The importance of tourism has grown exponentially, courtesy to its manifold advantages in form of employment, foreign exchange production household income and government revenues through multiplier effects, improvements in the balance of payments and growth in the number of tourism-promoted government policies [ 21 , 41 , 53 ]. Empirical findings on tourism and economic development have produced mixed finding and sometimes conflicting results despite the common choice of time series techniques as a research methodology. On empirical grounds, four hypotheses have been explored to determine the link between tourism and economic growth [ 12 ]. The first two hypotheses present an account on the unidirectional causality between the two variables, either from tourism to economic growth (Tourism-led economic growth hypothesis-TLGH) or its reserve (economic-driven tourism growth hypothesis-EDTH). The other two hypotheses support the existence of bi-directional hypothesis, (bi-directional causality hypothesis-BC) or that there is no relationship at all (no causality hypothesis-NC), respectively. According to TLEG hypothesis, tourism creates an array of benefits which spillover though multiple routes to promote the economic growth [ 55 ]. In particular, it is believed that tourism (1) increases foreign exchange earnings, which in turn can be used to finance imports [ 38 ], (2) it encourages investment and drives local firms toward greater efficiency due to the increased competition [ 3 , 31 ], (3) it alleviates unemployment, since tourism activities are heavily based on human capital [ 10 ] and (4) it leads to positive economies of scale thus, decreasing production costs for local businesses [ 1 , 14 ]. Other recent studies which find evidence in favor of the TLGH hypothesis include [ 44 , 52 ]. Even though literature is dominated by TLGH, few studies produce a result in support of EDTH [ 40 , 41 , 45 ]. Payne and Mervar [ 45 ] posit that tourism growth of a country is mobilized by the stability of well-designed economic policies, governance structures and investments in both physical and human capital. This positive and vibrant environment creates a series of development activities which proliferate and flourish the tourism. Pertaining to the readily available information, bi-directional causality could also exist between tourism income and economic growth [ 34 , 49 ]. From a policy view, a reciprocal tourism–economic growth relationship implies that government agendas should cater for promoting both areas simultaneously. Finally, there are some studies that do not offer support to any of the aforementioned hypotheses, suggesting that the impact between tourism and economic growth is insignificant [ 25 , 47 , 57 ]. There is a vast literature examining the relationship between tourism and growth as a result, only a selective literature review will be presented here.

Banday and Ismail [ 5 ] used ARDL cointegration model to test the relationship between tourism revenue and economic growth in BRICS countries from the time period of (1995–2013). The study validates the tourism-led growth hypothesis for BRICS countries, which evinces that tourism has positive influence on economic growth.

Savaş et al. [ 54 ] evaluated the tourism-led growth hypothesis in the context of Turkey. The study employed gross domestic product, real exchange rate, real total expenditure and international tourism arrivals to sketch out the causality among variables. The result reveals a unidirectional relationship between tourism and real exchange rate. The findings suggest that tourism is the driving force for economic growth, which in turn helps turkey to culminate its current account deficit.

Dhungel [ 15 ] made an effort to investigate causality between tourism and economic growth, In Nepal for the period of (1974–2012), by using Johansen’s cointegration and Error correction model. The result states that unidirectional causality exists in the long run, while in short run no causality exists between two constructs. The study emphasized that strategies should be devised to attain causality running from tourism to economic growth.

Mallick et al. [ 36 ] analyzed the nexus between economic growth and tourism in 23 Indian states over a period of 14 years (1997–2011). Using panel autoregressive distributed lag model based on three alternative estimators such as mean group estimator, pooled mean group and dynamic fixed effects, Research found that tourism exerts positive influence on economic growth in the long run.

Belloumi [ 8 ] examines the causal relationship between international tourism receipts and economic growth in Tunisia by using annual time series data for the period 1970–2007. The study uses the Johansen’s cointegration methodology to analyze the long-run relationship among the concerned variables. Granger causality based Vector error correction mechanism approach indicates that the revenues generated from tourism have a positive impact on economic growth of Tunisia. Thus, the study supports the hypothesis of tourism-driven economic growth, which is specific to developing countries that base their foreign exchange earnings on the existence of a comparative advantage in certain sectors of the economy.

Tang et al. [ 58 ] explored the dynamic Inter-relationships among tourism, economic growth and energy consumption in India for the period 1971–2012. The study employed Bounds testing approach to cointegration and generalized variance decomposition methods to analyze the relationship. The bounds testing and the Gregory-Hansen test for cointegration with structural breaks consistently reveals that energy consumption, tourism and economic growth in India are cointegrated. The study demonstrated that tourism and economic growth have positive impact on energy consumption, while tourism and economic growth are interrelated; with tourism exert significant influence on economic growth. Consequently, this study validates the tourism-led growth hypothesis in the Indian context.

Kadir and Karim [ 24 ]) examined the causal nexus between tourism and economic growth in Malaysia by applying panel time series approach for the period 1998–2005. By applying Padroni’s panel cointegration test and panel Granger causality test, the result indicated both short and long-run relationship. Further, the panel causality shows unidirectional causality directing from tourism receipts to economic growth. The result provides evidence of the significant contribution of tourism industry to Malaysia’s economic growth, thereby justifying the necessity of public intervention in providing tourism infrastructure and facilities.

Antonakakis et al. [ 2 ] test the linkage between tourism and economic growth in Europe by using a newly introduced spillover index approach. Based on monthly data for 10 European countries over the period 1995–2012, the findings suggested that the tourism–economic growth relationship is not stable over time in terms of both magnitude and direction, indicating that the tourism-led economic growth (TLEG) and the economic-driven tourism growth (EDTG) hypotheses are time-dependent. Thus, the findings of the study suggest that the same country can experience tourism-led economic growth or economic-driven tourism growth at different economic events.

Oh [ 41 ] verifies the contribution of tourism development to economic growth in the Korean economy by applying Engle and Granger two-stage approach and a bivariate Vector Autoregression model. He claimed that economic expansion lures tourists in the short run only, while there is no such long-run stable relationship between international tourism and economic development in Korea.

Empirical studies have pronouncedly focused on the literature that tourism promotes economic growth. To further substantiate the nexus, the study will investigate the plausible linkages between economic growth and international tourism while considering the relative importance of financial development in the context of BRICS nations. The inclusion of financial development in the examination of tourism-growth nexus is a unique feature of this study, which have an influencing role in economic growth as financial development has been theoretically and empirically recognized as source of comparative advantage [ 22 ].

This study employs panel ARDL cointegration approach to verify the existence of long-run association among the variables. Further, study estimated the long-run and short-run coefficients of the ARDL model. Subsequently, Dumitrescu and Hurlin [ 16 ] panel Granger causality test has been employed to check the direction of causality between tourism, financial development and economic growth among BRICS countries.

Database and methodology

Data and variables.

The study is analytical and empirical in nature, which intends to establish the relationship between economic growth and inbound tourism in BRICS countries. For the BRICS countries, limited studies have been conducted depicting the present scenario. Therefore, present study tries to verify the relevance of tourism in economic growth to further enhance the understanding of economic dynamics in BRICS countries. The data used in the study are annual figures for the period stretching from 1995 to 2015, consisting of one endogenous variable (GDP per capita, a proxy for economic growth) and two exogenous variables (international tourism receipts per capita and financial development). The variables employed in the study are based on the economic growth theory, proposed by Balassa [ 4 ], which states that export expansion has a relevant contribution in economic growth. Further, this study incorporates financial development in the model to reduce model misspecification as it is considered to have an influencing role in economic growth both theoretically and empirically [ 22 , 33 ].

The annual data for all the variables have been collected from the World Development Indicators (WDI, 2016) database. The variables used in the study includes gross domestic product per capita (GDP) in constant ($US2010) used as a proxy for economic growth (EG), international tourism receipts per capita (TR) in current US$ as it is widely accepted that the most adequate proxy of inbound tourism in a country is tourism expenditure normally expressed in terms of tourism receipts [ 32 ] and financial development (FD). In line with a recent study on the relationship between financial development and economic growth by Hassan et al. [ 19 ], financial development is surrogated by the ratio of the broad money (M3) to real GDP for all BRICS countries. Here we use the broadest definition of money (M3) as a proportion of GDP– to measure the liquid liabilities of the banking system in the economy. We use M3 as a financial depth indicator, because monetary aggregates, such as M2 or M1, may be a poor proxy in economies with underdeveloped financial systems, because they ‘are more related to the ability of the financial system to provide transaction services than to the ability to channel funds from savers to borrowers’ [ 26 ]. A higher liquidity ratio means higher intensity in the banking system. The assumption here is that the size of the financial sector is positively associated with financial services [ 29 ]. All the variables have been taken into log form.

Unit root test

To verify the long-run relationship between tourism and economic growth through Bounds testing approach, it is necessary to test for stationarity of the variables. The stationarity of all the variables can be assessed by different unit root tests. The study utilizes panel unit root test proposed by Levin et al. [ 35 ] henceforth LLC and Im et al. [ 23 ] henceforth IPS based on traditional augmented Dickey–Fuller (ADF) test. The LLC allows for heterogeneity of the intercepts across members of the panel under the null hypothesis of presence of unit root, while IPS allows for heterogeneity in intercepts as well as in the slope coefficients [ 48 ].

Panel ARDL approach to Cointegration

After checking the stationarity of the variables the study employs panel ARDL technique for Cointegration developed by Pesaran et al. [ 23 ]. Pesaran et al. [ 23 ] have introduced the pooled mean group (PMG) approach in the panel ARDL framework. According to Pesaran et al. [ 23 ], the homogeneity in the long-run relationship can be attributed to several factors such as arbitration condition, common technologies, or the institutional development which was covered by all groups. The panel ARDL bounds test [ 46 ] is more appropriate by comparing other cointegration techniques, because it is flexible regarding unit root properties of variables. This technique is more suitable when variables are integrated at different orders but not I (2). Haug [ 20 ] has argued that panel ARDL approach to cointegration provides better results for small sample data set such as in our case. The ARDL approach to cointegration estimates both long and short-run parameters and can be applied independently of variable order integration (independent of whether repressors are purely I (0), purely I(1) or combination of both. The ARDL bounds test approach used in this study is specified as follows:

where Δ is the first-difference operator, \(\alpha_{0}\) stands for constant, t is time element, \(\omega_{1} , \omega_{2} \;\;{\text{and}}\;\; \omega_{3}\) represent the short-run parameters of the model, \(\emptyset_{1} , \emptyset_{2} ,and \emptyset_{3}\) are long-run coefficients, while \(V_{it}\) is white noise error term and lastly, it represents country at a particular time period. In the ARDL model, the bounds test is applied to determine whether the variables are cointegrated or not.

This test is based on the joint significance of F -statistic and the χ 2 statistic of the Wald test. The null hypothesis of no cointegration among the variables under study is examined by testing the joint significance of the F -statistic of \(\omega_{1} , \omega_{2} ,\omega_{3}\) .

In case series variables are cointegrated, an error correction mechanism (ECM) can be developed as Eq. ( 2 ), to assess the short-run influence of international tourism and financial development on economic growth.

where ECT is the error correction term, and \(\varPhi\) is its coefficient which shows how fast the variables attain long-term equilibrium if there is any deviation in the short run. The error correction term further confirms the existence of a stable long-run relationship among the variables.

Panel granger causality test

To examine the direction of causality Dumitrescu and Hurlin [ 16 ] test is employed. Instead of pooled causality, Dumitrescu and Hurlin [ 16 ] proposed a causality based on the individual Wald statistic of Granger non-causality averaged across the cross section units. Dumitrescu and Hurlin [ 16 ] assert that traditional test allows for homogeneous analysis across all panel sets, thereby neglecting the specific causality across different units.

This approach allows heterogeneity in coefficients across cross section panels. The two statistics Wbar-statistics and Zbar-statistics provides standardized version of the statistics and is easier to compute. Wbar-statistic, takes an average of the test statistics, while the Zbar-statistic shows a standard (asymptotic) normal distribution.

They proposed an average Wald statistic that tests the null hypothesis of no causality in a panel subgroup against an alternative hypothesis of causality in at least one panel. Following equations will be used to check the direction of causality between the variables.

Estimation, results and Discussion

Descriptive statistics.

Table  1 presents descriptive statistics of variables selected for the period 1995–2015. The variable set includes GDP, FD and TR for all BRICS countries. Brazil tops the list with GDP per capita of 4.18, while India lagging behind all BRICS nations. In the recent economic survey by International Monetary Fund (IMF report 2016), India was ranked 126 for its per capita GDP. India’s GDP per capita went up to $7170 against all other BRICS countries which were placed in the above $10,000 bracket. China has the highest tourism receipts in comparison to other BRICS countries. China is a very popular country for foreign tourists, which ranks third after France and USA. In 2014, China invested $136.8 billion into its tourist infrastructure, a figure second only to the United States ($144.3 billion). Tourism, based on direct, indirect, and induced impact, accounted for near 10% in the GDP of China (WTTC report 2017).

Stationarity results

Primarily, we employed LLC and IPS unit root test to assess the integrated properties of the series. The results of IPS and PP tests are presented in Table  2 . Panel unit root test result evinces that FD and TR are stationary at level, while GDP per capita is integrated variable of order 1. The result exemplifies that GDP per capita, Tourism receipts and Financial Development are integrated at 1(0) and 1(1). Consequently, the panel ARDL approach to cointegration can be applied.

Cointegration test results

In view of the above results with a mixture of order integration, the panel ARDL approach to cointegration is the most appropriate technique to investigate whether there exists a long-run relationship among the variables [ 42 ]. Table  3 illustrates that the estimated value of F-statistics, which is higher than the lower and upper limit of the bound value, when InEG is used as a dependent variable. Hence, we reject the null hypothesis of no cointegration \(H_{0 } : \emptyset_{1} = \emptyset_{2} = \emptyset_{3} = 0\) of Eq. ( 1 ). Therefore, the result asserts that international tourism, financial development and economic growth are significantly cointegrated over the period (1995–2015).

Subsequently, the study investigates the long-run and short-run impact of international tourism and financial development on economic growth. Lag length is selected on the principle of minimum Bayesian information criterion (SBC) value, which is 2 in our case. The long-run coefficients of financial development and tourism receipts with respect to economic growth in Table  4 indicate that tourism growth and financial development exerts positive influence on economic growth in the long run. In other words, an increase in volume of tourism receipts per capita and financial depth spurs economic growth and both the coefficients are statistically significant in case of BRICS nations in the long run. The results are interpreted in detail as below:

The elasticity coefficient of economic growth with respect to tourism shows that 1% rise in international tourism receipts per capita would imply an estimated increase of almost 0.31% domestic real income in the long run, all else remaining the same. Thus, the earnings in the form of foreign exchange from international tourism affect growth performance of BRICS nations positively. This finding of our study is in consonance with the empirical results of Kreishan for Jordan [ 30 ], Balaguer and Cantavella-Jordá [ 3 ] for Spain and Ohlan [ 43 ] for India.

Further our finding lend support to the wide applicability of the new growth theory proposed by Balassa which states that export expansion promote growth performance of nations. Thus, validates TLGH coined by Balaguer and Cantavell-Jorda [ 3 ] which states that inbound tourism acts a long-run economic growth factor. The so called tourism-led growth hypothesis suggests that the development of a country’s tourism industry will eventually lead to higher economic growth and, by extension, further economic development via spillovers and other multiplier effects.

Likewise, financial development as expected is found to be positively associated with economic growth. The coefficient of financial development states that 1% improvement in financial development will push up economic growth by 0.22% in the long run, keeping all other variables constant. The empirical results are consistent with the finding of Hassan et al. [ 19 ] for a panel of South Asian countries. Well-regulated and properly functioning financial development enhances domestic production through savings, borrowings & investment activities and boosts economic growth. Further, it promotes economic growth by increasing efficiency [ 7 ]. Levine [ 33 ] believes that financial intermediaries enhance economic efficiency, and ultimately growth, by helping allocation of capital to its best use. Modern growth theory identifies two specific channels through which the financial sector might affect long-run growth; through its impact on capital accumulation and through its impact on the rate of technological progress. The sub-prime crisis which depressed the economic growth worldwide in 2007 further substantiates the growth-financial development nexus.

In the third and final step of the bounds testing procedure, we estimate short-run dynamics of variables by estimating an error correction model associated with long-run estimates. The empirical finding indicates that the coefficient of error correction term (ECT) with one period lag is negative as well as statistically significant. This finding further substantiates the earlier cointegration results between tourism, financial development and economic growth, and indicates the speed of adjustment from the short-run toward long-run equilibrium path. The coefficient of ECT reveals that the short-run divergences in economic growth from long-run equilibrium are adjusted by 43% every year following a short-run shock.

The short-run parameters in Table  5 demonstrates that tourism and financial development acts as an engine of economic growth in the short run as well. The coefficient of both tourism receipts per capita and financial development with one period lag is also found to be progressive and significant in the short run. These results highlight the role of earnings from international tourism and financial stability as an important driving force of economic growth in BRICS nations in the short run as well.

Further, a comparison between short-run and long-run elasticity coefficients evince that long-run responsiveness of economic growth with respect to tourism and financial development is higher than that of short run. It exemplifies that over time higher international tourism receipts and well-regulated financial system in BRICS nations give more boost to economic growth.

Analysis of causality

At this stage, we investigate the causality between tourism, financial development and economic growth presented in Table  6 . The result shows bi-directional causal relationship between tourism and economic growth, thereby validates ‘feedback hypothesis’ and consequently supported both the tourism-led growth hypothesis (TLGH) and its reciprocal, the economic-driven tourism growth hypothesis (EDTH). The bi-directional causality between inbound tourism and GDP, which directs the level of economic activity and tourism growth, mutually influences each other in that a high volume of tourism growth leads to a high level of economic development and reverse also holds true. These results replicate the findings of Banday and Ismail [ 5 ] in the context of BRICS countries, Yazdi et al. [ 27 ] for Iran and Kim et al. [ 28 ] for Taiwan. One of the channels through which tourism spurs economic growth is through the use of receipts earned in the form of foreign currency. Thus, growth in foreign earnings may allow the import of technologically advances goods that will favor economic growth and vice versa. Thus, results demonstrate that international tourism promotes growth and in turn economic expansion is necessary for tourism development in case of BRICS countries. With respect to policy context, this finding suggests that the BRICS nations should focus on economic policies to promote tourism as a potential source of economic growth which in turn will further promote tourism growth.

Similarly, in case of economic growth and financial development, the findings demonstrate the presence of bi-directional causality between two constructs. The findings validate thus both ‘demand following’ and supply leading’ hypothesis. The findings suggests that indeed financial development plays a crucial role in promoting economic activity and thus generating economic growth for these countries and reverse also holds. Our findings are in line with Pradhan [ 48 ] in case of BRICS countries and Hassan et al. [ 19 ] for low and middle-income countries. This suggests that finance development can be used as a policy variable to foster economic growth in the five BRICS countries and vice versa. The study emphasizes that the current economic policies should recognize the finance-growth nexus in BRICS in order to maintain sustainable economic development in the economy. The empirical results in this paper are in line with expectations, confirming that the emerging economies of the BRICS are benefiting from their finance sectors.

Finally, two-sided causal relationship is found between tourism receipts and financial development. That is, tourism might contribute to financial development and, in return, financial development may positively contribute to tourism. This means that financial depth and tourism in BRICS have a reinforcing interaction. The positive impact of tourism on financial development can be attributed to the fact that inflows of foreign exchange via international tourism not only increases income levels but also leads to rise in official reserves of central banks. This in turn enables central banks to adapt expansionary monetary policy. The positive contribution of financial sector to tourism is further characterized by supply leading hypothesis. Further, better financial and market conditions will attract tourism entrepreneurship, because firms will be able to use more capital instead of being forced to use leveraging [ 13 ]. Hence, any shocks in money supply could adversely affect tourism industry in these countries. Song and Lin [ 56 ] found that global financial crisis had a negative impact on both inbound and outbound tourism in Asia. This result is in consistent with Başarir and Çakir [ 6 ] for Turkey and four European countries.

Stability tests

In addition, to test the stability of parameters estimated and any structural break in the model CUSUM and CUSUMSQ tests are employed. Figs.  1 and 2 show blue line does not transcend red lines in both the tests, thus provides strong evidence that our estimated model is fit and valid policy implications can be drawn from the results.

Plot of CUSUM

Plot of CUSUMQ

Summary and concluding remarks

A rigorous study of the relationship between tourism and economic growth, through the tourism-led growth hypothesis (TLGH) perspective has remained a debatable issue in the economic growth literature. This study aims to empirically investigate the relationship between inbound tourism, financial development and economic growth in BRICS countries by utilizing the panel data over the period 1995–2015. The study employs the panel ARDL approach to cointegration and Dumitrescu-Hurlin panel Granger causality test to detect the direction of causation.

To the best of authors’ knowledge, this is the first study which explored the relationship between economic growth and tourism while considering the relative importance of financial development in the context of BRICS nations. The empirical results of ARDL model posits that in BRICS countries inbound tourism, financial development and economic growth are significantly cointegrated, i.e., variables have stable long-run relationship. This methodology has allowed obtaining elasticities of economic growth with respect to tourism and financial development both in the long run and short run. The result reveals that international tourism growth and financial development positively affects economic growth both in the long run and short run. The coefficient of tourism indicates that with a 1% rise in tourism receipts per capita, GDP per capita of BRICS economies will go up by 0.31% in the long run. This finding lends support to TLGH coined by Balaguer and Cantavell-Jorda [ 3 ] which states that inbound tourism acts a long-run economic growth factor. The so called tourism-led growth hypothesis suggests that the development of a country’s tourism industry will eventually lead to higher economic growth and, by extension, further economic development via spillovers and other multiplier effects.

Likewise, 1% improvement in financial development, on average, will increase economic growth in BRICS countries by 0.22% in the long run. The result seems logical as modern growth theory identifies two channels through which the financial sector might affect long-run growth: first, through its impact on capital accumulation and secondly, through its impact on the rate of technological progress. The sub-prime crisis which hit the economic growth Worldwide in 2007 further substantiates the growth-financial development nexus.

The negative and statistically significant coefficient of lagged error correction term (ECT) further substantiates the long-run equilibrium relationship among variables. The negative coefficient of ECT also shows the speed of adjustment toward long-run equilibrium is 43% per annum if there is any short-run deviation. The estimates of parameters are found to be stable by applying CUSUM and CUSUMQ for the time period under consideration. Therefore, inbound tourism earnings and financial institutions can be used as a channel to increase economic growth in BRICS economies.

Further, Granger causality test result indicates the bi-directional causation in all cases. Hence, the causal relationship between international tourism and economic growth is bi-directional. And, consequently this empirical finding lends support to both the tourism-led growth hypothesis (TLGH) and its reciprocal, the economic-driven tourism growth hypothesis (EDTH). This means that tourism is not only an engine for economic growth, but the economic outcome on itself can play an important role in providing growth potential to tourism sector.

The Granger causality findings provide useful information to governments to examine their economic policy, to adjust priorities regarding economic investment, and boost their economic growth with the given limited resources. Thus, it is suggested that more resources should be allocated to tourism industry and tourism-related industries if the tourism-led growth hypothesis holds true. On the other side, if economic-driven tourism growth is supported then more resources should be diverted to leading industries rather than the travel and tourism sector, and the tourism industry will in turn benefit from the resulting overall economic growth. And, when bi-directional causality is detected, a balanced allocation of economic resources for the travel and tourism sector and other industries is important and necessary. The policy implication is that resource allocation supporting both the tourism and tourism-related industries could benefit both tourism development and economic growth.

To sum up, the major finding of this study lends support to wide applicability of the tourism-led growth hypothesis in case of BRICS countries. Thus, in the Policy context, significant impact of tourism on BRICS economy rationalizes the need of encouraging tourism. Tourism can spur economic prosperity in these countries and for this reason; policymakers should give serious consideration toward encouraging tourism industry or inbound tourism. BRICS countries should focus more on tourism infrastructure, such as, convenient transportation, alluring destinations, suitable tax incentives, viable hostels and proper security arrangements to attract the potential tourists. Most of these countries are devoid of rich facilities and popular tourist incentives, to get promoted as important destination and in the long-run promotes economic growth. Further, they need a staunch support from all sections of authorities, non-government organizations (NGOs), and private and allied industries, in the endeavor to attain sustainable growth in tourism. Both state and non-state actors must recognize this growing industry and its positive implication on economy.

For future research, we suggest that researchers should consider the nonlinear factor in the dynamic relationship of tourism and economic growth in case of BRICS countries. Further one can go for comparative study to examine the TLGH in BRICS countries.

Availability of data and materials

Data used in the study can be provided by the corresponding author on request.

There are no fixed definitions of short, medium and long run and generally in macroeconomics, short run can be viewed as 1 to 2 or 3 years, medium up to 5 years and long run from 5 years to 20 or 25 years.

Abbreviations

autoregressive distributed lag model

Brazil, Russia, India, China and South-Africa

United Nations World Tourism Organization

World Travel & Tourism Council

gross domestic product

world development indicators

tourism-led growth hypothesis

export-led growth hypothesis

economic-driven tourism hypothesis

augmented Dickey–Fuller test

error correction model

error correction term

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Rasool, H., Maqbool, S. & Tarique, M. The relationship between tourism and economic growth among BRICS countries: a panel cointegration analysis. Futur Bus J 7 , 1 (2021). https://doi.org/10.1186/s43093-020-00048-3

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The Economic Impact of Tourism: What You Need to Know

Home » Blog » The Economic Impact of Tourism: What You Need to Know

Tourism encompasses much more than just leisurely vacations and exploring far-off destinations. In fact, this vast industry  plays a significant role in keeping the world economy thriving. 

When the world shut down due to the  COVID-19 pandemic, we saw its devastating effects on the tourism industry.  Airports were shut down, hotels were left empty, and online travel agencies experienced a complete halt in revenue. 

Like the rest of the world, the travel and tourism industry was in a state of limbo.

As we look to the future, it’s important to remember the power of tourism and its impacts on the global economy. In 2023, the tourism sector’s global market size is anticipated to  exceed 2019 , with a market size estimated at $2.29tn.

The impact of tourism on the economy extends beyond generating income and employment. It acts as a  growth engine, stimulating investment in infrastructure, promoting sustainable development, and fostering the conservation of cultural and natural heritage . This multifaceted influence demonstrates how tourism is fundamental to global economic development.

In this blog post, we’ll explore how tourism contributes to the economy and why it should be a priority for everyone.

How Much Does Tourism Contribute to the Global Economy?

Travel isn’t just good for the soul; it’s good for the economy. Let’s break down the numbers.

Contribution to Global GDP

Exploring the impact of tourism on the economy requires a detailed look at its contribution to the global GDP. This contribution is not only a direct reflection of tourist spending but also an indicator of  how tourism stimulates the economy through job creation , infrastructure investment, and a boost to related industries.

In 2019, the travel and tourism industry accounted for 10.4% of global GDP – that’s $10 trillion!  In 2022, the industry reached 7.6% of GDP .

Not only does this include the direct spending by tourists in hotels, restaurants, and attractions, but it also includes indirect spending in industries such as transportation, shopping, and entertainment.

This data indicates the industry’s resilience and potential to bounce back. The travel and tourism industry will continue to  contribute to the global economy.

Job Creation

In 2022, the tourism industry supported over  22 million jobs.  When people think of tourism-related jobs, they usually think of travel agents, hotel staff, and workers at tourist attractions. However, there are also  millions of people around the world who work in tourism and related industries.

The Interconnectedness of the Tourism Industry with Other Industries

The tourism industry is intricately connected to a wide array of other industries. 

It’s challenging to measure tourism’s exact contributions due to the level of fragmentation within the industry. However, its  actual values are expected to be far greater than reported.  This is because travelers also contribute to non-travel sectors such as retail, recreation, and entertainment.

Tourism is a significant driver of economic prosperity as it contributes to job creation and spurs innovation and investments.

The Relationship Between Tourism and Economic Growth

Given the significant impact of tourism on the global economy, it’s important to examine the relationship between tourism and economic growth.

Tourism as a Driver for Economic Growth 

Increased demand stimulates the economy  by creating jobs in different sectors, from hospitality to transport which brings in more revenue and opportunities for growth within the community.

Zurab Pololikashvili, the secretary general of UNWTO, said,  “ Global tourism is on track to return to pre-pandemic levels by the end of year.  By investing in people and projects that make a difference, we can deliver on the sector’s potential to drive growth and opportunity for all.”

In tourism, there are jobs that are  directly related to tourism  and tourism spending; for example, when a tourist travels to Barcelona, they will spend money on hotels, tour guides, and activities.

But there are also those  indirectly related to tourism ; for instance, when they go to a restaurant in the city or shop at a local store, they contribute to the local economy.

Boost Your OTA Revenue Now!

Discover our Business Suite for OTAs. Empower your travel agency in the global tourism market.

The Multiplier Effect of Tourism

The interconnectedness of tourism also leads to the multiplier effect, which amplifies the economic impact of tourism on a region or country. 

The Journal of Risk and Financial Management conducted a study that found  “The impact of tourism activity on economic development is determined by the current  multiplier mechanism created by the existing revenue-expenditure flow  in the sector due to international tourism movements.” 

Tourism also has a  multiplier effect on other industries . For example, suppose a tourist spends money on a hotel room. In that case, the hotel purchases goods and services from other businesses, such as food, linen, and toiletries. These businesses, in turn, purchase goods and services from other companies, and the cycle continues.

This means that the  economic impact of tourism is not limited to the tourism industry  but spreads across various sectors of the economy. The expenditure of international tourists on tourism can generate income that may result in new revenue streams, investments, savings, and consumption.

The Role of Online Travel Agencies in Promoting Economic Growth 

Online travel agencies play an important role in promoting economic growth and development. They  help connect travelers with different hotels, flights, and activities. 

However, they don’t just help them find the right place to stay or flight to book. OTAs also  provide travelers with inspiration, knowledge, and insights  to help them make the best trip decisions.

Their promotional activities can fastly  increase the economic growth of the regions they promote.  For instance, OTAs can promote different destinations and activities they may not know. Whether it’s a destination in the countryside or a less-traveled area such as many developing countries.

In addition to traditional methods of economic growth in tourism, the importance of exploring sustainable approaches, cannot be overstated. Gain a deeper understanding of this forward-thinking practice, which includes diverse examples and effective implementation strategies, in our in-depth exploration about what is regenerative tourism.

How Does Tourism Affect Developing Countries?

When tourists spend more money when they travel, and the money they spend is reinvested into the local economy, tourism directly impacts the economy.

Tourism increases economic activity. The influx of tourists drives up local businesses’ demand for services and products,  creating jobs, increasing revenue, and reducing poverty.

Direct benefits include those  created by tourism-related activities  such as accommodation, transport, and attractions. Indirect benefits come from  supporting activities to tourism,  such as construction and retailing. 

Tourism also benefits developing countries in other ways, such as  improving the perception of their country on the global stage  and increasing foreign investment.

Challenges and Opportunities for Online Travel Agencies in Emerging Markets

In John Lea’s book, Tourism and Developments in the Third World, he discusses how  small island communities depend more on foreign tourism  than bigger countries. Island tourism can be a lifeline for many people in these places, particularly regarding job creation and economic opportunities. 

However, challenges like  limited infrastructure, political instability, and lack of local tourism products still exist. 

The 5 A’s of tourism – attractions, activities, accessibility, accommodation, and amenities, play a significant role in  determining the success of tourism in any destination.  By improving these areas, emerging markets can better leverage and capitalize on their tourism potential.

Online travel agencies can play a crucial role in driving economic growth in these markets:

• They have the potential to  access untapped opportunities  that are often overlooked.
• They can  promote lesser-known tourist hotspots  with potential. 
• They can  partner with governments and local tourism stakeholders  in emerging markets.
• They are  more agile and better equipped  to respond quickly to changing market needs.
• They can enable local players to  expand their reach, open up new markets, and create economic value. 
• They can  provide a platform for local businesses  to showcase their products.

Case Studies of Successful Tourism Development in Developing Countries

South Africa

South Africa is an excellent example of a developing country that has  successfully utilized tourism  as an integral part of its economic growth plan. 

The tourism industry accounts for  3.7% of South Africa’s GDP.  This is higher than the contribution of agriculture, utilities, and construction.

The country’s abundance of natural and cultural resources makes it a popular tourist destination for people worldwide. With its stunning beaches, mountains, and diverse wildlife reserves, it has become one of Africa’s most popular tourism destinations.

South African Tourism (SAT) and the Department of Tourism have  aligned their strategic plan for 2020-2025  to encourage the growth and development of tourism in South Africa. This includes providing efficient marketing for tourist destinations and improving cooperation between different levels of government in managing tourism.

The accommodation industry’s total income  in September 2022 increased by 79.3% compared to September 2021. Among all accommodation options,  hotels experienced the most significant increase in total income , with a 118.6% rise.

Egypt is another great example of a developing country that has seen success in the tourism industry. Egypt’s tourism earnings are expected to reach $13.6 billion in 2023.

The Minister of Tourism, Ahmed Issa, aims to achieve an annual growth rate of 25% to 30%. This is part of Egypt’s plan to  attract 30 million tourists by 2028.  They aim to  invest $30bn  (30,000 rooms) to meet anticipated demand. Additionally, they plan to invest investment in customer experiences.

The focus of the Egyptian government is to offer  improved tourism experiences . This includes promoting cultural heritage sites, nature-based tourism activities, and other diverse tourist attractions unique to Egypt.

India is another developing country rapidly gaining traction in the tourism industry. India’s total contribution to GDP in Travel & Tourism r anked sixth in 2022.  Tourism jobs are expected to  increase by 8.3% , reaching nearly 35 million employment opportunities.

The Ministry of Tourism launched the Swadesh Darshan scheme to promote theme-based tourism in India and harness its potential for development.

Their goals are to improve the local economies, generate job opportunities, promote industry skill development, increase private sector investment, and conserve local cultural and natural resources.

What Are the Four Economic Impacts of Tourism?

1. Infrastructure Development

Tourism provides the government and private sector with the  revenue to invest in the infrastructure required for tourism activities . This includes the construction and renovation of roads, highways, and airports. For example, increased tourism can lead to improved access and transportation networks, which benefit the local economy and travelers alike.

2. Cultural Preservation 

Tourism also plays a role in  preserving historical sites and cultural traditions.  As many visitors worldwide flock to a destination to learn about its history and culture, tourism can help generate sufficient funds for cultural conservation efforts.

3. Natural Resources

Tourism can provide  incentives for protecting and preserving  natural resources and ecosystems. By introducing sustainable tourism practices, areas with important biodiversity can be better safeguarded against destruction while delivering economic benefits to the local community.

4. Local Entrepreneurship and Small Business Growth

The influx of visitors to a destination can also  stimulate the growth of small, locally-owned businesses.  Restaurants and retail stores often experience increased profits. At the same time, entrepreneurs can take advantage of new opportunities in the tourism industry.

Leveraging the Power of Tourism for Online Travel Agencies

Online travel agencies play a vital role in the tourism industry, providing the convenience of booking services with just a few clicks.  With the right strategies, OTAs can leverage the power of tourism  to maximize its economic impact. 

Strategies for Maximizing the Positive Economic Impact of Tourism:

There are three strategies for maximizing the positive impact of tourism: understanding the local economy, promoting responsible and sustainable tourism practices, and adapting to evolving trends in the tourism industry.

1. Understand the Local Economy. 

To better serve your clients, it’s crucial to comprehend how tourism can  economically benefit various regions  based on the type of travel agency you operate. This knowledge can then aid you in aligning your clients’ interests with your business goals.

For example, tourists visiting a region may stimulate local businesses and introduce new products that would otherwise not be available. This can have a ripple effect on the local economy.

2. Promoting Responsible and Sustainable Tourism Practices

The way online travel agencies advertise and promote their services based on responsible and sustainable tourism practices has changed over the years. 

OTAs can support this by promoting sustainable and  ethical travel opportunities that empower local communities.

For example, an OTA may promote eco-friendly accommodations, sustainable tour operators, and local community initiatives.

3. Adapting to Evolving Trends in the Tourism Industry

Tourists often seek out new experiences, and OTAs can provide information about activities that  match their interests.

For example, experiential travel, which focuses on activities such as cultural experiences and outdoor adventures, has been gaining traction in recent years.

The economic impact of tourism is enormous, and the industry has the potential to be a  significant driver of global economic growth. 

OTA’s have an important role to play in the continued success of this sector, and understanding the  economic impact that tourism has on their business  can help them make smart decisions and continue to grow their business. Tourism affects not only these agencies but also hotels, airlines, and other related businesses. Additionally, the  industry provides many opportunities for growth and development in the tourism sector.  As governments worldwide strive to create more sustainable and environmentally conscious development models, the tourism industry can provide a key source of income and job opportunities.

For insights into successful tourism marketing strategies, offering valuable perspectives and case studies and, as we explore the significant economic impact of tourism, it’s also important to understand how effective campaigns in tourism can amplify this impact.

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Economic Impact of Natural Disasters – Risk & Resilience Strategies

Natural disasters, from hurricanes and earthquakes to floods and wildfires, have profound implications on the global economy. Their frequency and intensity seem to be increasing in the wake of climate change, making it more crucial than ever to understand their economic impacts. This article explores the financial toll of natural disasters, risk assessment methodologies, and resilience strategies that can mitigate their adverse effects. The intersection of environmental and economic studies forms a crucial area of focus for policymakers, economists, and environmentalists alike. By embracing a multidisciplinary approach, we can build a more robust framework for addressing the socioeconomic vulnerabilities exposed by natural disasters.

Understanding the Economic Toll of Natural Disasters

The economic impact of natural disasters can be both immediate and long-term. Immediate impacts are often quantified by the damage to infrastructure, loss of human lives, and the disruption of everyday activities. These immediate losses are often colossal. For instance, Hurricane Katrina, which struck New Orleans in 2005, caused approximately $125 billion in damages. Similarly, the 2011 Tohoku earthquake and tsunami in Japan resulted in damages amounting to around $235 billion.

Long-term economic consequences can include loss of investor confidence, disruption of trade, and significant shifts in demographics as populations move away from vulnerable areas. The indirect costs often manifest in ways not immediately visible, such as psychological impacts on affected populations, increased insurance premiums, and a strained public sector resource pool.

Moreover, natural disasters disproportionately affect lower-income regions, amplifying pre-existing inequalities. Wealthy areas can often mitigate some of the impact through advanced infrastructure and quicker access to resources for rebuilding, whereas poorer regions struggle to recover, leading to prolonged periods of economic stagnation.

Risk Assessment in Environmental Economics

Risk assessment in environmental economics involves identifying potential natural disaster risks and estimating their possible economic consequences. One critical aspect is hazard mapping, which uses historical data and predictive models to highlight areas more susceptible to natural disasters. Geographic Information Systems (GIS) play an instrumental role in this mapping effort by providing spatial data that can be analyzed to identify at-risk regions.

Another essential component of risk assessment is vulnerability analysis. This process involves understanding the socioeconomic factors that make particular communities more susceptible to disasters. Characteristics such as poverty levels, population density, and the quality of infrastructure are all considered in this analysis. By identifying these factors, policymakers can prioritize resources and preventative measures to the most vulnerable populations.

Additionally, cost-benefit analysis (CBA) is commonly used to weigh the costs of implementing preventative measures against the potential savings from avoided disaster impacts. CBA helps in making informed decisions about the allocation of resources, ensuring that investments in disaster prevention provide maximum economic benefit.

Case Study: Hurricane Katrina

To understand the profound economic impact of natural disasters, let’s delve deeper into Hurricane Katrina. Striking the Gulf Coast of the United States in August 2005, it remains one of the deadliest and costliest hurricanes in U.S. history.

Katrina’s direct economic impact was immense. In addition to the estimated $125 billion in property damage, the storm resulted in significant job losses and business interruptions across multiple sectors. New Orleans’ essential industries, including tourism, shipping, and fishing, were severely affected. The reconstruction process spanned years and required substantial federal aid and insurance payouts.

The indirect consequences were equally substantial. The displacement of over a million people resulted in long-term demographic changes and economic dislocation. Many residents could not return to their homes or jobs, leading to a labor shortage and changes in the housing market. Additionally, the psychological impact on the displaced populations contributed to reduced productivity and increased healthcare costs.

Hurricane Katrina underscored the importance of adequate planning and resilience strategies. The failure of the levee system, which was a crucial element of New Orleans’ flood prevention measures, highlighted deficiencies in infrastructure investment and maintenance. This case study illustrates the need for comprehensive risk assessment and robust resilience planning to mitigate the economic impacts of such disasters.

Resilience Strategies

Resilience strategies are essential to prepare for, respond to, and recover from natural disasters effectively. These strategies can be broadly categorized into structural and non-structural measures.

Structural measures involve building or upgrading physical infrastructure to withstand the impacts of natural disasters. For example, constructing flood barriers, reinforcing buildings to resist earthquakes, and creating redundant infrastructure systems to ensure continuity of essential services. Investments in disaster-resilient infrastructure can significantly reduce the immediate economic damage during a disaster.

Non-structural measures include policies, planning, and educational campaigns designed to enhance community resilience. Land-use planning can ensure that buildings and critical infrastructure are not positioned in high-risk areas. Early warning systems and public education campaigns can help communities prepare and respond more effectively when disasters strike.

Economic instruments such as insurance schemes and catastrophe bonds can also play a vital role in resilience strategies. These financial tools can distribute the economic risks associated with natural disasters, providing resources for recovery and rebuilding. Insurance helps affected populations and businesses to recover quickly, while catastrophe bonds allow governments to finance recovery efforts without burdensome debt levels.

Global Efforts in Disaster Risk Reduction

Disaster risk reduction is a global priority. The United Nations Office for Disaster Risk Reduction (UNDRR) coordinates international efforts to reduce disaster risks and build resilient communities. The Sendai Framework for Disaster Risk Reduction 2015-2030 outlines global priorities, emphasizing the need to understand disaster risk, strengthen disaster risk governance, invest in resilience, and enhance disaster preparedness for effective response.

International financial institutions, such as the World Bank, also play a crucial role in funding disaster risk reduction initiatives. They provide resources and expertise to help countries develop and implement resilience strategies. Additionally, public-private partnerships are increasingly viewed as essential for mobilizing the resources and innovation needed to tackle disaster risks.

Collaboration is crucial. Disasters do not respect borders, and the economic consequences often have global repercussions. By sharing knowledge, expertise, and resources, countries can enhance their collective ability to address and recover from natural disasters.

Technology and data-driven approaches are also critical in global disaster risk reduction efforts. Advanced modeling, real-time monitoring, and big data analytics can improve risk assessment accuracy and enable more effective early warning systems. Leveraging technology allows for better decision-making and more efficient allocation of resources in the face of an impending disaster.

Local Initiatives and Community Involvement

While global efforts are crucial, localized initiatives and community involvement are equally vital in enhancing resilience to natural disasters. Local governments, community organizations, and individuals play significant roles in disaster preparedness and response.

Community-based disaster risk management (CBDRM) focuses on involving local populations in identifying risks and formulating resilience strategies. Local knowledge and experience are invaluable in understanding specific vulnerabilities and tailoring solutions to meet community needs. Engaging communities in disaster risk assessments ensures that measures are contextually relevant and more likely to be successful.

Volunteer programs and grassroots organizations can also make substantial contributions. Volunteer networks are essential during and after disasters, providing immediate assistance, facilitating evacuations, and supporting recovery efforts. Grassroots organizations can advocate for policy changes, raise awareness, and facilitate coordination between different stakeholders.

Education and training are paramount. Schools, workplaces, and community centers can conduct regular drills and training sessions to ensure that people know what to do in case of an emergency. Effective communication and public awareness campaigns can help disseminate vital information, ensuring that everyone is prepared and knows how to respond when disaster strikes.

Natural disasters present significant economic challenges, but through comprehensive risk assessments and resilience strategies, their negative impacts can be mitigated. Understanding the interconnectedness of various factors is essential for developing effective solutions. When assessing risk, it’s vital to consider the socioeconomic context, local vulnerabilities, and potential long-term consequences.

Resilience strategies, both structural and non-structural, offer the best chance of minimizing economic damage and facilitating rapid recovery. Investments in robust infrastructure, early warning systems, and community education are all critical components of a comprehensive disaster preparedness plan. Additionally, insurance schemes and catastrophe bonds can provide financial stability in the aftermath of a disaster, easing the recovery process.

Global and local efforts in disaster risk reduction must be harmonized to enhance collective resilience. International cooperation, technological advancements, and community involvement all play crucial roles in this endeavor. By fostering a collaborative approach that integrates global perspectives with local knowledge, we can build a more resilient world.

Ultimately, the economic impact of natural disasters can never be entirely eliminated, but through proactive measures, we can significantly reduce their toll. Policymakers, economists, environmentalists, and communities must work together to build a resilient future, capable of withstanding the challenges posed by natural disasters.

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Journal of Economic Perspectives

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Going for the Gold: The Economics of the Olympics

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• The transformative power of innovation districts: A deep dive into their economic impact and potential

Senior Advisor, Boston Consulting Group & Managing Partner, Adams Advisors, LLC

Vice President of Consulting and Co-Founder, Ascend Indiana

Innovation districts have emerged as a powerful force in the modern economy, fostering collaboration between businesses, research institutions and communities. These districts are defined as geographic areas where anchor university institutions and companies—from startups to large corporations—cluster, connect with each other and leverage programs such as business incubators and accelerators. They are places where “creative collisions” occur. These districts are designed to be physically compact and transit-accessible, and offer a mix of housing, office and retail spaces—a true live, work, learn and play environment. The value they create for their communities is multifaceted, including economic growth, job creation and enhanced social cohesion.

David J. Adams is a Senior Advisor at Boston Consulting Group and Managing Partner of Adams Advisors, LLC, specializing in workforce, higher education and economic development. He previously served as Indiana’s Workforce Development Commissioner and led the creation and development of the Cincinnati Innovation District, which became the model for the state of Ohio. An accomplished entrepreneur, Adams has helped grow numerous businesses. He holds degrees in Industrial Engineering, has received multiple awards for his contributions to economic development and innovation, and is a frequent speaker and Forbes contributor.

The Brookings Institution has been instrumental in documenting and analyzing the rise of innovation districts. In their groundbreaking research, Brookings identified the core components necessary for a successful innovation district: the clustering of innovative sectors and research strengths, the convergence of disparate sectors and disciplines, and the supercharging effect of a diversity of institutions, companies and startups. 1 These components, along with strong connectivity and proximity; a mix of long-, intermediate- and short-term strategies and a focus on programming and social interactions, create the vibrant ecosystems that drive innovation districts.

As cities around the world seek to revitalize urban areas and spur economic development, the concept of innovation districts has gained significant traction. These districts are not just about clustering businesses and research institutions; they represent a fundamental shift in the way cities approach economic development, placing a premium on density, connectivity and collaboration.

Value created by innovation districts

The impact of innovation districts extends far beyond their physical boundaries. Economically, they drive job creation, attract talent and investment, and stimulate local businesses. Socially, they foster a sense of community and collaboration, bringing together diverse groups of people to work on cutting-edge technologies and ideas.

Economic benefits

Innovation districts are powerful engines of economic growth. They attract investment from both the public and private sector, are major attractors and retainers of talent, and are driving the development of new innovations, businesses and industries. The clustering of companies, from startups to large corporations, creates a dynamic ecosystem where ideas can be quickly developed and brought to market. This leads to job creation, not only within the district but also in surrounding areas. For instance, Silicon Valley is renowned for its tech industry, which has created millions of jobs and attracted billions of dollars in investment. It is renowned as the epicenter of global technology. It is also the oldest innovation district in the United States.

University City in Philadelphia has become a hub for medical research and innovation, drawing major pharmaceutical companies, startups and academic researchers. This has led to significant advancements in health care and life sciences, creating high-paying jobs and boosting the local economy. The MaRS Discovery District in Toronto has catalyzed significant advancements in the health and technology sectors, attracting companies like Johnson & Johnson and Autodesk. TechSquare and ScienceSquare in Atlanta have fostered a vibrant startup ecosystem, supported by Georgia Tech’s strong engineering and computer science programs. The Cincinnati Innovation District, which this author architected, is anchored by numerous Fortune 500 companies and boasts a robust startup ecosystem.

Community and social impacts

Innovation districts also have profound social impacts. They foster a sense of community and collaboration, bringing together diverse groups of people into a live, work, learn and play environment. This sense of community is reinforced by the physical design of these districts, which often include public spaces, cultural amenities and housing.

Innovation districts can also drive social inclusion and equity. By creating job opportunities in diverse sectors, they help bridge economic divides and provide pathways to prosperity for underrepresented groups. For instance, Kendall Square in Cambridge, Massachusetts stands as a premier example of a successful innovation district that has made concerted efforts to include local communities in its growth story. Programs focused on education, workforce development and entrepreneurship are critical to ensuring that the benefits of innovation districts are broadly shared.

Anchor actors in innovation districts

The success of innovation districts hinges on the active participation and collaboration of several key actors:

Universities as anchor institutions

Universities are often the cornerstone of innovation districts. They provide a steady stream of talent, foster research and development, and often act as anchor institutions that attract businesses and startups. Their role is crucial in driving innovation and fostering a collaborative environment. For example, the Massachusetts Institute of Technology (MIT) in Kendall Square has been instrumental in the district's growth, fostering partnerships between academia and industry that have led to significant technological advancements. Universities also contribute to the cultural and intellectual vibrancy of innovation districts, hosting events, lectures and public discussions that engage the broader community. 

In addition to MIT, other universities, such as Stanford in Silicon Valley, the University of Pennsylvania and Drexel University in University City, the University of Toronto near the MaRS Discovery District and the University of Cincinnati in the Cincinnati Innovation District, play similar roles. These institutions not only drive research and development, but also provide vital support services such as business incubators, accelerators and funding for startups. They are major economic engines providing access to student and faculty talent, research and educational resources.

Companies ranging from startups to large corporations

Innovation districts benefit from the presence of both startups and established corporations. Startups bring agility and fresh ideas, while large corporations provide stability, funding and extensive resources. The mix of different-sized companies creates a dynamic ecosystem where ideas can be rapidly developed and scaled. They are physical places where “creative collisions” can occur amongst the participants.

For instance, in Silicon Valley, the presence of tech giants like Google, Apple and Facebook alongside numerous startups creates fertile ground for innovation. Similarly, in the MaRS Discovery District, large companies such as Johnson & Johnson work alongside emerging biotech firms to develop new health care solutions. This collaboration between companies of different sizes fosters a culture of innovation and accelerates the development of new products and services.

Community involvement and support

The community plays a vital role in the success of innovation districts. Community support and engagement are essential for creating a vibrant, inclusive environment that attracts talent and fosters innovation. Local residents, civic organizations and government entities all contribute to the district's development and sustainability.

In the Cincinnati Innovation District, community involvement has been a key factor in its success. By engaging local residents in the district’s activities and ensuring that they benefit from the economic growth, the district has built strong community support. This includes initiatives such as local hiring programs, community events and educational opportunities that connect residents with the district’s innovation ecosystem.

A case study: Kendall Square

Kendall Square in Cambridge offers a compelling case study of the transformative power of innovation districts. Kendall Square dubs itself “the most innovative square mile on the planet.” The square itself was named after the owner of the 1880s Kendall Boiler and Tank Company, Edward Kendall. 

Historically a hub for manufacturing, the area has evolved into a vibrant ecosystem of innovation, largely due to the presence of MIT. Over the years, Kendall Square has attracted numerous biotech and pharmaceutical companies, research institutions, and startups. This clustering has led to a thriving economy, with the district now boasting one of the highest concentrations of life sciences companies in the world. It has become a magnet for talent and the companies that seek that talent.

History of Kendall Square

Kendall Square wasn’t always a hub for innovation; its transformation began in the 1960s when MIT started to expand its campus and attract research and development activities. Prior to that time, it was an area in economic decline, mainly used for industrial purposes and full of parking lots and empty space. The establishment of the Cambridge Redevelopment Authority helped facilitate this transformation by promoting mixed-use development and improving infrastructure. Over the next few decades, the area evolved from an industrial zone into a hub for technology and innovation.

Key partnerships and stakeholders

The success of Kendall Square can be attributed to strategic partnerships between various stakeholders, including MIT, the City of Cambridge, private companies and nonprofit organizations. MIT played a pivotal role by fostering a culture of innovation and collaboration, while the City of Cambridge provided the necessary infrastructure and regulatory support. Private companies brought investment and resources to the district.

Kendall Square has evolved over time. With MIT as a core anchor, Biogen joined in 1982. It provided Biogen access to researchers at MIT and local talent. As its reputation grew, so did the number of life science corporations that joined the cluster. This included Novartis, Pfizer, Moderna, Amgen and Eli Lilly. It also became a place that attracted world-class talent.

However, Kendall Square is not limited to life sciences. It has also attracted technology cluster giants including Apple, Google, Microsoft and IBM. It is a powerhouse of innovation from startups to Fortune 500 companies—proximity and location matter.

Economic impact over time

The economic impact of Kendall Square is profound. Before its transformation, the area was economically stagnant. Today, it is a powerhouse of innovation, contributing significantly to the local and state economy. The district’s success can be attributed to several factors, including strategic partnerships, investment in infrastructure and a focus on attracting and retaining top talent. Programs like the MIT Innovation Initiative have been crucial in fostering an entrepreneurial environment where ideas can be developed and brought to market.

Kendall Square has become a catalyst for other areas in the Boston region. Its development and success have served as a model by demonstrating the potential for transforming urban spaces into thriving innovation districts. One example is Eli Lilly’s recent announcement of their Lilly Seaport Innovation Center in Boston’s Seaport district. The research and development center will house 500 scientists and researchers, connecting Lilly’s expertise with early-stage biotech companies. 2

Mechanisms for talent attraction

One of the key mechanisms for talent attraction and retention in Kendall Square is the presence of MIT, which draws top talent from around the world. Additionally, the district offers a high quality of life, with access to cultural amenities, public spaces and a vibrant community. MIT and the companies in Kendall Square also actively recruit globally, creating a strong talent pipeline.

The district’s collaborative environment also plays a crucial role in talent attraction. The close proximity of companies, research institutions and universities fosters a culture of collaboration and knowledge-sharing, which is highly attractive to top talent. Additionally, the presence of venture capital firms and business incubators provides the necessary support for startups and entrepreneurs, further enhancing the district’s appeal. It’s all about talent.

Economic data and impact

The district’s robust infrastructure, including state-of-the-art research facilities and collaborative workspaces, supports more than 29,000 individuals working in innovation-related employment that has also generated nearly 147,000 additional jobs. 3 Stated another way, for every one direct innovation job, another five indirect jobs were created. The average income of innovation-related employment exceeds $195,000 per year, reflecting the high-value work being conducted in the district. 4 The presence of major companies such as Biogen, Moderna and Pfizer has attracted significant investment flowing into the district for research and development activities.

In terms of specifics, Kendall Square is home to public companies with a market value of approximately $170 billion. 5 The area is recognized as the top life science cluster in the U.S. and second in venture capital investments only to California. 6 Between 2017 Q3 and 2023 Q2, the value of venture deals was $99.2 billion. 7 As of 2023, Kendall Square had approximately 56 million square feet of laboratory and R&D space with a planned expansion of another 13.4 million square feet over the next two years. 8

Social and community impact

Kendall Square has also made significant strides in community engagement and social responsibility. The district hosts numerous public events, such as science festivals, tech meetups and community fairs, which foster a sense of belonging and inclusivity. These events not only promote innovation, but also ensure that the benefits of the district’s economic success are shared with the broader community.

The district’s commitment to sustainability and green development is also noteworthy. Kendall Square’s buildings adhere to stringent environmental standards, with many achieving LEED (Leadership in Energy and Environmental Design) certification. This focus on sustainability has reduced the district’s carbon footprint and promoted a healthier living environment for residents and workers alike.

Kendall Square has seen a remarkable transformation fueled by billions of dollars in investment, making it a global hub for innovation, particularly in biotechnology, pharmaceuticals and technology. These investments were made in commercial, residential and mixed-use spaces, R&D centers, transportation and utilities infrastructure, and technology to support the district. They were fueled by both the public and private sector. These commitments include local and state government and corporate investments. It’s a collective and collaborative effort.

The investment is ongoing. The Kendall Square Initiative was launched in 2016 with a planned investment of $1.2B to develop new research, commercial, residential and retail spaces. 9 This initiative is part of the broader MIT Innovation Initiative, which began in 2013 with the goal of fostering innovation and entrepreneurship across the MIT community.

Indiana’s OneHealth Innovation District:  A catalyst for economic growth

Building on the success of established innovation districts, Indiana Governor Eric Holcomb recently announced the OneHealth Innovation District. 10 The OneHealth Innovation District has the potential to become a major driver of economic growth in Indianapolis, the state of Indiana and the broader midwestern region. The two initial anchors that will catalyze this effort are Elanco Animal Health and Purdue University.

Location, location, location

The OneHealth Innovation District will be located at the former GM stamping plant just across the White River in downtown Indianapolis. The GM stamping plant was built in the 1930s and officially closed its doors in 2001. The IEDC acquired the land and designated it an “innovation development district.” 

The location itself is strategically situated and adjacent to numerous resources, including Purdue University in Indianapolis, IU Indianapolis, IU Health, 16Tech Community Corporation, Eli Lilly, Indiana Biosciences Research Institute, BioCrossroads, AgriNovus and many others. It will not only be a place where innovation occurs, but it will also leverage the many organizations and locations nearby.

Overview of the OneHealth Innovation District

Elanco Animal Health is developing its corporate headquarters at the site and it is expected to be completed in the second quarter of 2025. 12 The site will include state-of-the-art research facilities, business incubators, and office, meeting and event space. Elanco has also announced that it will acquire another 12 acres for further expansion. 13 In addition, Elanco is planning to commit funds to catalyze venture investments in early-stage ideas and entrepreneurs.

For Purdue University, this builds on the extension of Purdue University in Indianapolis. This location provides the opportunity to expand the substantial and meaningful work that Purdue researchers conduct and provide opportunities for students in the heart of Indianapolis. 14

The overall site will also include mixed-use development, providing a true “live, work, learn and play” environment for individuals and organizations, creating a dynamic ecosystem of innovation.

Potential economic impact on Indianapolis, Indiana and the region

In a recent report, Dr. Phil Powell and Riley Zipper highlight that even though Indianapolis has low unemployment, the city lags in the growth of high-wage jobs when compared to cities like Nashville, Denver, Charlotte and Columbus. 15

This also presents a significant opportunity. The potential economic impact of the OneHealth Innovation District as a core driver to change could be substantial. If Indiana's OneHealth Innovation District achieves similar success to Kendall Square, it would significantly boost the city and state's economy and create thousands of jobs in the process.

By attracting companies and fostering collaboration between universities, research institutions and industry, the district can spur innovation, improve economic outcomes for individuals, become a talent attraction and retention mechanism, and contribute to the state's economic growth by focusing and building on one of its core strengths.

The OneHealth Innovation District has the opportunity to create thousands of high-paying jobs and attract billions of dollars in investment. This will have a ripple effect on the local economy, boosting demand for housing, retail and services. The district will also enhance the state’s reputation as a hub for innovation, attracting talent and investment from across the country and around the world.

Economic opportunity

Rewinding the clock, Indianapolis and Boston were nearly equivalent in per capita income in 1978 (see Figure 1 ). By 2022, however, per capita income in Boston was more than one-third higher that of Indianapolis. In 1978, Indianapolis per capita income was 97% that of Boston, but by 2022, it had fallen to 73%. 16

Figure 1: Indianapolis metro per capita income as a percent of Boston metro per capita income

Source: Federal Reserve Bank of St. Louis. 2023. “Per capita personal income in Indianapolis-Carmel-Anderson, IN (MSA)”. Federal Reserve Economic Database . https://fred.stlouisfed.org/series/INDI918PCPI . Federal Reserve Bank of St. Louis. 2023. “Per capita personal income in Boston-Cambridge-Newton, MA-NH (MSA)”. Federal Reserve Economic Database . https://fred.stlouisfed.org/series/BOST625PCPI .

From a demographic standpoint, the Boston metro is significantly larger than the Indianapolis metro (4.9 million people and 2.1 million people, respectively), but the college age and young adult population percentages are nearly identical. 17 What is different is the share of the population 25 years and older who hold at least a bachelor’s degree (51% in Boston and 37% in Indianapolis) and those holding a graduate or professional degree (23% in Boston and 13% in Indianapolis). 18

The Brookings Institute has highlighted that the key economic driver in today’s economy is people. Their research highlights that the economic value of knowledge and capabilities in the workforce is four times more valuable than physical capital and ten times more valuable than urban land. 19 This is also playing out economically. Between 2017 and 2022, Boston per capita GDP grew 59% faster and real labor productivity grew 154% faster than Indianapolis. 20 , 21 , 22

The catalyst created by Kendall Square has also resulted in significant venture investment. The value of venture deals between 2017 and 2023 was $99.2 billion in Boston compared to $1.8 billion in Indianapolis. 23

The economic opportunity and results created in Boston with Kendall Square can be created in Indianapolis, too. Kendall Square, and the myriad of other well-developed innovation districts, can serve as blueprints to accelerate this effort. The OneHealth Innovation District can be a major catalyst in realizing this opportunity.

Community and regional benefits

The development of the OneHealth Innovation District will have significant social and community benefits. By promoting health innovation and research, the district will provide opportunities to improve public health outcomes for residents of Indianapolis and the surrounding areas. Community engagement initiatives will ensure that residents have access to new job opportunities and educational programs, fostering a sense of ownership and involvement in the district’s success.

Innovation districts represent a significant opportunity for cities and regions to drive economic growth, foster innovation and improve the quality of life for their residents. The examples of Kendall Square, Silicon Valley and others demonstrate the transformative potential of these districts. Many of these successes occurred serendipitously with little forward vision or planning. They are also very “congested” in terms of activity and access to resources. The OneHealth Innovation District can be forward-thinking, act with intentionality and move at the speed of business. These are competitive differentiators in a highly competitive global market. It will take time, but the opportunity exists to create something in years where others have taken decades.

For Indiana, the development of the OneHealth Innovation District presents a unique opportunity to build on existing strengths and create a vibrant ecosystem of innovation. By leveraging the power of collaboration and focusing on key sectors, such as the health of animals, people, plants and the planet, Indiana can position itself as a leader in the next wave of economic development.

The success of innovation districts depends on the active participation and collaboration of universities, companies and the community. By fostering a culture of innovation and creating a supportive environment for businesses and startups, cities can harness the potential of innovation districts to drive economic growth and social progress. The future of innovation districts is bright, and with the right strategies and investments, they can become powerful engines of prosperity and inclusivity.

With strategic planning and robust support from all stakeholders, Indiana’s OneHealth Innovation District could serve as a model for others, demonstrating how targeted investment in innovation and collaboration can drive sustained economic growth and community development. Just imagine the economic opportunity and impact the OneHealth Innovation District will have on Indianapolis, the state and the region as it becomes a global beacon for innovation.   

This article focuses on innovation districts and their economic impact. It does not cover the significant economic impact the Heartland BioWorks, of which the OneHealth Innovation District is a strategic anchor, will have on Indianapolis and Indiana. The Heartland BioWorks, based in Indianapolis, is one of only 12 Tech Hubs designated by the U.S. Economic Development Administration with a focus on areas critical to strengthening U.S economic competitiveness and national security. 24

With the broader innovation ecosystem that includes Purdue University, Indiana University, IU Health, 16Tech Community Corporation, Eli Lilly, Indiana Biosciences Research Institute, BioCrossroads and AgriNovus to name just a few, the economic opportunities and benefits are substantially greater.

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Inside This Issue Special Issue 2024   |   Volume 99, No. 3

• Naptown and Beantown: Insights on prosperity for Central Indiana
• Naptown and Beantown: A graphic companion
• Topic index

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