Foreign tourist spending boosts South Korea's economic growth by 0.15%

Foreign tourist spending is significantly contributing to South Korea's economic growth, with an estimated boost of 0.15 percentage points to the annual growth rate during the 2022-2025 period. This figure, highlighted in a Bank of Korea report, reflects the ongoing recovery and expansion of inbound tourism following the pandemic.

The report, titled 'Economic Effects and Policy Directions of the Tourism Industry from the Perspective of Service Exports,' analyzed the impact of tourism exports, defined as foreign currency earnings from foreign tourists' consumption of services and goods like accommodation, food, shopping, and transportation. Since 2000, tourism exports have contributed an average of 0.04 percentage points to GDP growth annually. However, this contribution is expected to rise to an average of 0.15 percentage points per year between 2022 and 2025, as inbound tourism demand has substantially recovered.

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Scenario analysis results show that to expand the scale of tourism exports, it is more effective and less policy-burdening to increase both spending amounts and length of stay, rather than simply increasing the number of inbound visitors.

Approximately 60% of this growth contribution comes directly from tourism-related businesses such as accommodation, food services, and transportation. The remaining 40% is generated indirectly through related industries that supply intermediate goods and services to these core tourism sectors. In the past year, South Korea welcomed 18.94 million foreign tourists, surpassing the pre-pandemic peak of 17.5 million in 2019.

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If we increase the average length of stay to the current level of 6.5 days, we can reach the benchmark by increasing the number of inbound visitors by 2.26 million and raising the average daily spending by $21.3.

To elevate its tourism export scale to match Japan's level (1.46% of GDP), South Korea needs a substantial increase in its tourism export value. The Bank of Korea estimates that this would require a 25.4% rise, or $5.56 billion, by 2025. Such growth would generate an additional $4.4 billion in domestic value-added output, equivalent to 0.235% of the projected nominal GDP for 2025.

The central bank suggests that simply increasing the number of tourists may not be the most effective strategy. Instead, focusing on increasing both the spending amount per visitor and the length of their stay is crucial. For instance, achieving Japan's benchmark solely by increasing visitor numbers would require an additional 4.81 million tourists annually, potentially leading to over-tourism issues similar to those seen in Spain and Italy. A more balanced approach, such as increasing average daily spending by $45.2 and extending the average stay by 1.7 days, or a combination of moderate increases in visitor numbers and spending, could achieve the policy goals with less strain.

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Even with the same tourism export value, guiding the spending structure of inbound visitors to high-value areas such as medical tourism can further increase domestic value added.