An Endogenous Growth Model of International Tourism

Abstract

This paper investigates the relationship between tourism and economic growth in a dynamic model of international trade. Tourism is viewed as a twofold channel for promoting long-term growth. It finances the imports of foreign capital, but also allows non-traded goods to be consumed by tourists. The authors study both channels jointly in a decentralized two-production sector model, in which four different economic agents interact in a dynamic setting: tourists; domestic consumers; competitive firms in the tourism sector; and firms in the non-traded goods sector. The result is an endogenous growth model in which tourism is the growth engine and balanced growth is assured thanks to the quality of tourist services being kept constant. Although tourists' preferences do not affect the long-run growth of the economy, they can determine the sectoral composition of the economy receiving the tourists.