Please explain why the marginal propensity to import is one of the major reasons for tourism leakage for developing countries.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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A country's marginal propensity to import impacts the amount of GDP growth that it can expect to gain from tourism.  When tourist dollars are spent in a country, the increase that they cause in that country's GDP can be determined using a multiplier.  The value of that multiplier is impacted by the country's marginal propensity to import.  The higher the marginal propensity to import, the less benefit the country will get in GDP growth from each tourist dollar spent there.

If a country imports a lot of goods and services, the dollars that it takes in from the tourist trade will simply flow out again.  This will mean that it will not see a great deal of GDP growth.  If, however, it buys fewer imports, the tourist dollars will stayin inside the country and contribute to an increase in GDP.

So, marginal propensity to import is a cause of tourism leakage because the money spent on tourism can "leak" out of the country to buy imports and, therefore, not increase the country's GDP as much as it might otherwise do.

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