A Structural View of Tourism Growth

Abstract

Structural factors are important when it comes to explaining tourism growth. In this connection, crucial roles are played by structural change in demand and differentials between productivity in tourism and in manufacturing. The demand factor stimulates the rise of tourism demand and explains why tourism grows faster than the global economy as such or why the income elasticity is above 1: tourism is a luxury good, and structural change in demand is a key factor in analysing its development. Once saturation has been achieved in basic needs and durable goods, a growing economy has more money left to spend on, first, leisure and tourism services and, secondly, knowledge-based goods and services. In contrast to manufacturing, opportunities to increase productivity are limited in the tourism industry. Because there are fewer options for rationalization, tourism services become more expensive in the long term than manufactured goods or other services, and this weakens the demand-triggered growth effect. Nevertheless, in sum the demand effect is stronger than the productivity disadvantages. As a side-effect of the productivity disadvantages and the demand effect, employment grows as a share of total employment in the hotel and restaurant industry, the core segments of the tourism business.