In recent years, the prospects of Kenya’s tourism industry have been clouded by a perfect storm of misfortunes – insecurity, growing global competition, and unsustainable tourism development. It is in this context that the potential and actual contribution of the tourism sector to the country’s development has been questioned, with claims that tourism contributes less to the Kenyan economy than commonly thought. This report is arranged as follows: Chapter 1 identifies linkages with sectors that provide inputs into tourism as well as sectors that benefit from the boost in demand generated by the industry (termed the backward and forward linkages respectively). The results in Chapter 2 indicate that the effects on the economy depend on the cross‐sectoral linkages. Hence, impacts on the economy differ depending on whether they emanate from changes in foreign tourist arrivals, changes in domestic tourist demand, oil price shocks, or foreign exchange shocks. Chapter 3 attempts to explore how long‐term growth and poverty rates are affected with investments in the different segments of the tourism industry. Finally, recognizing that growth in the sector is dependent upon sustainable resource use, Chapter 4 contributes to the analysis of alternative policy strategies by investigating policies for the allocation of water. This is a highly relevant, though much neglected issue as Kenya is amongst the most water scarce countries in Africa and also has a highly water intensive economy (when measured in per capita availability, Kenya is more water scarce than land, and projections suggest the former will get worse faster). The Computable General Equilibrium (CGE) model is also used to examine the growth consequences of reallocating water from the highly water‐dependent tourism industry to other sectors of the economy