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The Economic Effects Of Advertising On Tourism Demand

Author

Listed:
  • 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.

Suggested Citation

  • Juan Gabriel Brida & Stefan Franz Schubert, 2008. "The Economic Effects Of Advertising On Tourism Demand," Economics Bulletin, AccessEcon, vol. 6(45), pages 1-16.
  • Handle: RePEc:ebl:ecbull:eb-08f40026
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    References listed on IDEAS

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    1. Jean-Jacques Nowak & Mondher Sahli & Pasquale M. Sgro, 2003. "Tourism, Trade And Domestic Welfare," Pacific Economic Review, Wiley Blackwell, vol. 8(3), pages 245-258, October.
    2. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, January.
    3. Schubert, Stefan F & Turnovsky, Stephen J, 2002. "The Dynamics of Temporary Policies in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 604-622, November.
    4. S. A. Ozga, 1960. "Imperfect Markets Through Lack of Knowledge," The Quarterly Journal of Economics, Oxford University Press, vol. 74(1), pages 29-52.
    5. 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, vol. 22(1), pages 179-209, February.
    6. Lester G. Telser, 1964. "Advertising and Competition," Journal of Political Economy, University of Chicago Press, vol. 72, pages 537-537.
    7. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    8. Stephen J. Turnovsky, 2000. "Methods of Macroeconomic Dynamics, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262201232, January.
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    More about this item

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • L8 - Industrial Organization - - Industry Studies: Services

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