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Macroeconomic Effects of Changes in Tourism Demand: A Simple Dynamic Model

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  • Stefan F. Schubert
  • Juan Gabriel Brida

Abstract

This paper studies the macroeconomic effects of an increase in tourism demand due both to an exogenous increase in foreigners' income and to tourism marketing activities in a small country which specializes in tourism production. Using a dynamic general equilibrium model, the authors show that an increase in tourism demand leads to an increase in the relative price of domestically produced tourism services and increases tourism production. Because the dynamic transition is characterized by capital accumulation and a current account deficit, the economy ends up with a higher capital stock but a lower stock of net foreign assets. Higher foreign income has a welfare-increasing effect, whereas an increase in marketing expenditures has ambiguous effects on residents' consumption and welfare. The authors also discuss the effects of a temporary demand stimulus, which is nonetheless shown to have permanent effects on the country's net foreign asset position and agents' consumption.

Suggested Citation

  • Stefan F. Schubert & Juan Gabriel Brida, 2009. "Macroeconomic Effects of Changes in Tourism Demand: A Simple Dynamic Model," Tourism Economics, , vol. 15(3), pages 591-613, September.
    • Handle: RePEc:sae:toueco:v:15:y:2009:i:3:p:591-613
    DOI: 10.5367/000000009789036549
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    References listed on IDEAS

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    1. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, December.
    2. Stefan F. Schubert & Stephen J. Turnovsky, 2006. "Anticipated Fiscal Policy Changes and Goods Market Adjustments," German Economic Review, Verein für Socialpolitik, vol. 7(2), pages 135-161, May.
    3. Stephen J. Turnovsky, 2000. "Methods of Macroeconomic Dynamics, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262201232, December.
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    Cited by:

    1. Oscar Claveria, 2017. "“What really matters is the economic performance: Positioning tourist destinations by means of perceptual maps," IREA Working Papers 201713, University of Barcelona, Research Institute of Applied Economics, revised Jun 2017.
    2. Cao, Zheng & Li, Gang & Song, Haiyan, 2017. "Modelling the interdependence of tourism demand: The global vector autoregressive approach," Annals of Tourism Research, Elsevier, vol. 67(C), pages 1-13.
    3. Narayan, Paresh Kumar & Sharma, Susan Sunila & Bannigidadmath, Deepa, 2013. "Does tourism predict macroeconomic performance in Pacific Island countries?," Economic Modelling, Elsevier, vol. 33(C), pages 780-786.

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