Tourism in Industrialized Countries: Catalyst for Growth or Economic Burden?

Despite the growing economic relevance of tourism, we know little about its long-term economic impact in industrialized countries. How does tourism shape labor markets and local economic activity? I address this question by analyzing the case of Italy, using exogenous variation in outbound tourism by country of origin, interacted with historical destination preferences within Italy, as an instrument for tourist inflows. I find that exposure to tourism reduces employment-to-population and labor force participation rates while increasing the local population. Tourism also reshapes the employment structure, expanding jobs in hospitality and entertainment at the expense of manufacturing and non-tourism-related services. It leads to a decline in the average size of business establishments, particularly in manufacturing, suggesting negative effects on productivity. Tourism is also associated with lower average labor and per capita incomes, and rising property income and housing prices. These findings suggest that tourism may hinder long-run economic development by shifting resources from more to less productive sectors.