From Palladium Magazine, July 18:
In the United States, newscasters read out employment numbers and GDP growth figures. In Southern Europe, they read out tourist arrival numbers. In many countries, tourism has become synonymous with future economic prosperity. When put into numbers, the dependence of some countries on foreign tourist spending is staggering. In 2019, just before the COVID-19 pandemic threw global tourism into chaos, international tourist receipts were equivalent to 53% of Montenegro’s exports; the figures are similarly high for Albania (51%), Croatia (38%), Greece (28%), Portugal (23%), and even large countries like Spain (19%) and Turkey (16%). For comparison, automobiles are 17% of Germany’s exports and oil is 49% of the United Arab Emirates’ exports. Some European countries are more dependent on tourism than Dubai is on oil, and most of Southern Europe is more dependent on tourism than Germany is on exporting Volkswagens and BMWs.
In the eyes of economists, this is simply the magic of comparative advantage in trade at work. The Arabs were blessed with oil, the Germans with a work ethic, and the inhabitants of the Mediterranean with perhaps the world’s most comfortable climate and most beautiful coastline. Late last year, The Economist even called Spain the best economy in the developed world, with Greece not far behind. Why should it matter how a country earns a living, if GDP keeps going up?
The problem is that, to a first approximation, no country has ever reached the ranks of the global wealthiest countries by relying primarily on tourism and, moreover, many countries highly dependent on tourism remain very poor. Jamaica, Bali, the Maldives, and Fiji are globally recognizable, name-brand destinations that are as or even more dependent on tourism than Southern Europe. All four are also unenviably poor by European standards, despite having small or even tiny populations to share in the incoming tourism money.
The apparent or actual exceptions do not detract much from this picture. Macao is China’s Las Vegas, on steroids. Andorra is a small patch of land between France and Spain which is not part of the European Union and therefore does not levy sales taxes on alcohol, tobacco, perfume, and other goods—like an airport duty-free zone. Monaco is a sovereign neighborhood of a mid-sized French city populated by some of the world’s wealthiest people. Bermuda, Malta, Cyprus, and others are financial hubs as much as or more than they are tourism hotspots. Importantly, all of these states are also tiny in terms of population: the largest is Cyprus, with 1.3 million people, while Andorra, Bermuda, and Monaco have truly miniscule populations of less than 90,000 people each. Whatever works for idiosyncratic micro-states is unlikely to work for much larger states of five or ten million people, let alone fifty million or more.
Tourism is not a path to prosperity for Southern Europe or likely any nation with a more than trivial population because of the very nature of the activity: for a relatively limited financial reward, it is intensive in both labor and capital while being effectively a zero-sum competition between countries—in which any given country has very limited ability to compete through ingenuity or differentiation—all the while having pretty much only cascading negative externalities on the rest of the economy and society, from overcrowding cities to disincentivizing skilled labor. By my calculations, tourism grew as a share of the economy in all the main Southern European countries from 1999 to 2019. But rather than a new potential vector of economic dynamism and growth, rising tourism is a flashing red emergency siren, a sign of an economy that is failing at everything else.
The Math Does Not Add Up
Croatia is a small Mediterranean country with a winding coastline, plentiful islands, warm and crystal-clear seawater, and a central location reached easily from anywhere in Europe. Nowadays, it is trendy with young tourists and, as the newest EU member state, is still on the economic upswing. If any country in Southern Europe could get rich from tourism, it would be Croatia. How many tourist arrivals would be necessary for Croatia to achieve the GDP per capita of Switzerland, one of the wealthiest countries in the world?The GDP per capita i.e. annual income per person [sic - GDP is production not income] of Switzerland is roughly $100,000 per year. The population of Croatia is 3.86 million people. To be as rich as Switzerland, Croatia would need $386 billion in income. The average tourist in Croatia reportedly spends about $200 per day. Therefore, to get as rich as Switzerland but solely from tourism, Croatia would need its tourists to spend 1.93 billion nights in the country each year. In 2024, international tourists spent only 85 million nights in the country. That is just 4% of the necessary figure, meaning the tourism sector would need to grow more than twenty times over. If all these billions of necessary tourist-nights were crammed into the traditional three-month summer “tourist season,” Croatia would need to simultaneously host 21.4 million tourists each day of each summer. This is over twenty times the current population of Croatia’s coastal regions....
....MUCH MORE
And stay away from the Dalmatian Coast.
