Tourism Economics

As tourism is becoming one of the most important sectors of the world economy, the number of small islands trying to develop a competitive tourist activity is increasing and this strategy appears as growth enhancing. In most cases, it relies on the environmental quality of the destination, but also on lodging infrastructures and related services that tourists deserve in order to enjoy a good experience. This paper explores the intertemporal trade-off between investments and environmental quality preservation needed to ensure tourism profitability in the long run. It highlights the possible cyclical evolution of environmental quality, tourist infrastructures, investments and visitor numbers, considering both the central planner and the market solutions.

Exports are generally assumed to promote long-term growth through two main channels. The first, known as the export-led growth (ELG) hypothesis, is by enhancing economy-wide efficiency. This mechanism has recently been applied to tourism services exports (the tourism-led growth, TLG, hypothesis). The second channel is the financing of imports of foreign capital goods, thus raising the level of capital formation. Although this channel turns out to be empirically important, no theoretical rigorous foundation has yet been provided. Moreover, it has never been investigated for tourism exports. This paper fills two gaps. On the theoretical side, it provides a clear justification of the role of capital good imports in the link between exports and overall economic growth. A model has been built to examine this so-called EKIG hypothesis (exports → capital good imports → growth) in which sustained economic growth is achieved by imports of foreign capital entirely financed through inbound tourism. This model highlights a mechanism of international transmission of economic growth from the tourist-generating country (the tourism services importer) to the tourist-receiving economy (the tourism services exporter) through trade and terms-of-trade movement without any technological progress, research and development (R&D) activity or accumulation of human capital in the host economy. On the empirical side, this study constitutes the first attempt to examine the role of tourism exports on economic growth through capital good imports. The authors use Johansen's cointegration approach and the multivariate Granger causality test to analyse the TKIG (tourism → capital good imports → growth) hypothesis in the Spanish economy.

Tourism satellite accounts (TSAs) and computable general equilibrium (CGE) models are used increasingly in tourism analysis, though they have distinctly different functions. These are illustrated by means of two examples. The first of these involves developing measures of profitability and productivity of the Australian tourism industry – the national TSA was used to provide the database for this exercise. The second involves measuring the yield of different types of tourists to the tourism industry and the economy as a whole. TSAs provide an appropriate technique to estimate economic yield at the industry level, while the CGE approach is used to estimate the yield to the economy as a whole.

This study focuses on the dynamic behaviour of a small open economy specialized in tourism based on natural resources. The author analyses the steady-state properties in two scenarios, with and without public abatement expenditures, and a unique local saddle-point equilibrium is found for both cases. The analysis of the dynamics provides an alternative explanation for the observed positive growth performance of small open tourism-based economies and for the worldwide increases in tourist inflows, which are seen as transitional phenomena towards the path to the steady state. Moreover, in defining the conditions under which tourism development, improvements in environmental quality and economic growth can simultaneously occur, the model provides theoretical microfoundations for sustainable tourism. Finally, in both scenarios, the author analyses the issue of market failures, taking into account two different kinds of externality and finding the respective optimal tax rates that will induce private agents to replicate the social optimum.

The tourist product life cycle model predicts different stages of the evolution of the industry in a particular region, focusing on the number of tourists visiting over a period of time. In this paper, we consider the role of environmental degradation and the decline in natural capital as determinants of the tourist product life cycle and the implications for economic welfare. It is shown that the optimal trajectory of tourist consumption increases when the stock of natural capital is high and environmental attributes are preserved, and tend to decline when the tourist product has reached a low level of natural capital, which is defined as the stock of natural resources giving value to the tourist product. The main implication is that the evolution of demand as represented by the number of tourists does not need to match economic welfare. In addition, the evolution of the tourist product life cycle converges to a stationary solution characterized by positive levels of tourist consumption and natural capital. The results have implications for the optimal management of the number of tourists and the environmental attributes of tourist destinations. Optimal taxation can play a role in financing the maintenance of the optimal level of natural capital in the stationary state.

This paper analyses the empirical relationship between growth, country size and tourism specialization by using a data set covering the period 1980–2003. It finds that tourism countries are small and grow significantly faster than all the other subgroups considered in the analysis. Tourism appears to be an independent determining factor for growth: controlling for initial per capita income and for trade openness does not weaken the positive correlation between tourism specialization and growth. Another finding of the paper is that small states are fast growing only when they are highly specialized in tourism. In contrast with some previous conclusions in the literature, smallness per se is not good for growth.

This paper presents evidence from a global study of the scale and impact of foreign investment in tourism, highlighting the implications for small island developing states (SIDS). It draws upon findings from a two-year United Nations Conference for Trade and Development (UNCTAD) research and policy analysis project based on a global survey of transnational hotel groups with a presence in developing countries and in-depth case studies of domestic and international investment in tourism in twelve countries. The project aimed to provide empirical evidence to help policymaking in developing countries that wish to benefit more from tourism foreign direct investment (FDI). It does not favour foreign investment above domestic investment, but aims simply to provide more information on an aspect which is increasingly a policy priority for developing countries and which is not frequently addressed in empirical terms in the literature.

This paper discusses wine and tourism clusters and the recent innovation of wine tourism in which businesses operate within both industries. The concept of micro-clusters is examined in terms of trust, networking, collaboration and other activities, all of which are argued to depend on the concepts of game theory and sunk costs. The study involved both interviews and a questionnaire. Conceptual variables are created from the questionnaire responses using factor analysis. The determinants of cluster activities are modelled using regression analysis. The effects of industry, place and respondents' entrepreneurial characteristics are used as exogenous variables. The study finds that industry does seem to be more important than place in the determination of networking and cooperative cluster activities, and that members of the wine tourism industry participate more in these activities than members of the tourism or hospitality industries. The addition of three variables that embody the entrepreneurial characteristics of the respondents approximately doubles the explanatory power of the original models. There is evidence to suggest that cluster activities are idiosyncratic for each industry–place cluster. The effects of firm size on cluster activities are also examined. No evidence is found of cooperative activities depending on cluster size. The main results support the contention that sunk costs are important in the determination of cluster activities.

This paper examines the application of quantitative techniques to further our understanding of international trade theory with respect to tourism flows. The analyses are based on the construction of Balassa and Grubel–Lloyd Indices, as well as the construction of dynamic indices. The results of the analyses suggest that international trade theory has much to offer the study of international tourism flows. Many countries seem to specialize as both exporters and importers of tourism services. The analyses also explore the theoretical assertion that intra-industry trade is likely to be of importance in understanding international tourism flows.

This paper focuses on investigating the importance of transportation infrastructure in the overall attractiveness of a destination. It extends a classical demand for international tourism function to include transport infrastructure, as measured by proxies of land and air transport, as additional and separate inputs in a panel data framework for the case of island economies. Due to the possibility of reputation effects in tourism, the study also employs dynamic panel data estimates for a sample of island economies. Results from the analysis show tourists are sensitive to both types of transport infrastructure. Disaggregated studies further show that this is more pronounced for top and renowned island destination cases. The study also confirms the existence of persistence effects and repeat tourism for the latter destinations.