Navigating growth and sustainability : Analysing the economic impact of tourism in Iceland

Abstract

This study analyses the economic impact of tourism in Iceland, focusing on its contributions to GDP, employment, and foreign currency earnings. This study employs descriptive and comparative secondary data analysis based on available statistics and an extensive literature review to assess the sector’s development, resilience, and sustainability within global and national contexts. The findings confirm that tourism is a key pillar of Iceland’s economy, surpassing traditional export industries in value and generating significant employment opportunities. However, the sector’s volatility exposed during the COVID-19 pandemic and its dependence on international markets reveal structural vulnerabilities that threaten a sustainable future. Beyond economic considerations, this study critically engages with the growing pressures of over-tourism, seasonality, and environmental degradation, particularly in ecologically sensitive areas. Recent scholarship and policy shifts emphasise the need for sustainability indicators, equitable taxation mechanisms, and participatory governance to guide Iceland’s tourism development. This research highlights that balancing economic growth with environmental limits and community well-being is essential for building a more resilient and future-proof tourism model. These insights help inform policymakers, stakeholders, and researchers in aligning tourism strategies with sustainability and diversification goals.