Following the end of the Second World War, the Bahamas attempted to develop two primary areas of economic activity, i.e. a year round tourism industry and an offshore financial services sector, to create a stable economy.

However, the main stimulus for the growth of tourism was the American trade embargo on Cuba in 1961, following Castro's overthrow of the Batista government, and the subsequent nationalization of American assets. Cuba was a popular tourist destination in the 1950s due to its casinos and nightlife, and the embargo essentially restricted American travel to Cuba. As a result, much of this traffic moved to the Bahamas. Casinos were opened on Paradise Island and Nassau and in 1968 the country experienced its first one million-visitor year. 

Unfortunately, the favourable circumstances of the 1950s and 60s unravelled in the 70s. In 1968, the Bahamas achieved majority rule with the election of the Progressive Liberal Party and by 1973 had achieved independence from the UK and become a self-governing country. This created uncertainty in the investment community and a number of investors pulled out forcing the Government to take over a number of hotels and attempt to operate them itself in an effort to maintain employment levels. At the same time Bahamas Airways collapsed in 1970, to be replaced by Bahamas World Airways which in turn failed in 1972. Bahamasair was created in 1973. The final blow during this time was the first oil crisis which lead to severe economic recession.

Despite these difficulties, the hotel industry showed some signs of recovery. However, that was quickly undone, when the world was held hostage by OPEC again in 1979, and the resulting oil crisis led to a recession in 1980.

In the late 1970s it was also noted that the growth from tourism was coming from stopovers and cruise visitors, which while boosting overall numbers, contributed little towards the country's revenue. Thus, in the 80s, the hotel industry began facing serious difficulties with operating costs and return on investment. This period also marked the rise of competition in the form of Cancun, Jamaica, Puerto Rico and Aruba.

Then, in 1991 came the Gulf War, and with it, a North American economic recession. This had a major impact on long stay stopovers and hotel visitors, whose numbers fell, and at the same time, the cruise visitors increased. Thus by 1992 the Bahamas found itself with an aging hotel industry, virtually no new investment, and very poor return on operations and on capital invested. As a result the destination gained a reputation as a cruise line port of call rather than a destination where one would want to spend a longer vacation. This had an adverse impact on employment and wages, and the tourism industry was on the brink of economic disaster. In 1992, the electorate of the Bahamas dismissed the incumbent government and elected the Free National Movement to be its new government. One of the first decisions made by the new Government was that it would no longer remain in the hotel business. Thus began a phase of disinvestment and privatisation of the hotel industry.

It may also be noted that as a result of the problems faced by the industry in the early 1990s, many airlines had cut back their services to Nassau. Charter carriers temporarily filled the void, but as the quality of product improved, the scheduled air carriers returned.

However, the cruise industry went through a period of contraction during the mid-90s as ships developed new itineraries and opened up shorter 3 and 4 day cruises. At the same time, cruises began leaving Nassau earlier in the day to open on board shops and casinos. To counter this, in 1995 the Government passed legislation to encourage ships to stay longer in port and to increase the overall volume of traffic by offering incentives to the cruiseline companies. This began to pay quick dividends and reversed the decline in traffic but it wouldn't be until the arrival of Disney Magic and Disney Wonder in 1998 and 1999 respectively, that the cruise industry would become stable.

In 2008-09, the world was greeted by another recession, which again impacted the largely tourism dependent economy with lower occupancy levels, and declines in both stopovers and cruise activity. The slump in foreign investment also affected construction activities which adversely affected employment.

In recent years, the country has been plagued by a lack of economic growth, which has never been enough to generate employment in the first place. Analysts have blamed this low growth on lack of fiscal reforms. High unemployment and household debt have subdued consumer demand, leaving little room for domestic expansion. In addition, the country has been accused of facilitating drug transit and money laundering.