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The Economic Effects Of Advertising On Tourism Demand

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  • Juan Gabriel Brida

    ()
    (Free University of Bolzano, Italy)

  • Stefan Franz Schubert

    ()
    (Free University of Bolzano, Italy)

Abstract

In this paper we introduce a dynamic model to study the macroeconomic effects of advertising activities in tourism. The agents of the model are a representative consumer which optimize their intertemporal welfare, a representative firm that produces tourism services, an authority which organizes tourism advertising abroad and foreigner tourists. We show that in the short run, an increase in marketing expenditures raises foreigner's tourism demand, leads to an increase in the relative price of tourism services, makes tourism production more attractive and stimulates capital investment. As time passes, the capital stock increases and tourism production expands, leading to a falling price of tourism. In the long run, the increase in marketing activities results in a higher rate of tourism production, a higher capital stock, a lower relative price of tourism services and a reduction of net foreign assets.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 6 (2008)
Issue (Month): 45 ()
Pages: 1-16

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Handle: RePEc:ebl:ecbull:eb-08f40026

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  1. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262201119, December.
  2. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(4), pages 729-54, July/Aug..
  3. Schubert, Stefan F & Turnovsky, Stephen J, 2002. "The Dynamics of Temporary Policies in a Small Open Economy," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 10(4), pages 604-22, November.
  4. Stephen J. Turnovsky, 2000. "Methods of Macroeconomic Dynamics, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 0262201232, December.
  5. Pasquale M. Sgro & Jean-Jacques Nowak & Mondher Sahli, 2004. "Tourism, Trade and Domestic Welfare," Working Papers, Fondazione Eni Enrico Mattei 2004.24, Fondazione Eni Enrico Mattei.
  6. Lester G. Telser, 1964. "Advertising and Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 537.
  7. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
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