Explaining High Economic Growth in Small Tourism Countries with a Dynamic General Equilibrium Model
This paper shows that tourism specialisation can help to explain the observed high growth rates of small countries. For this purpose, two models of growth and trade are constructed to represent the trade relations between two countries. One of the countries is large, rich, has an own source of sustained growth and produces a tradable capital good. The other is a small poor economy, which does not have an own engine of growth and produces tradable tourism services. The poor country exports tourism services to and imports capital goods from the rich economy. In one model tourism is a luxury good, while in the other the expenditure elasticity of tourism imports is unitary. Two main results are obtained. In the long run, the tourism country overcomes decreasing returns and permanently grows because its terms of trade continuously improve. Since the tourism sector is relatively less productive than the capital good sector, tourism services become relatively scarcer and hence more expensive than the capital good. Moreover, along the transition the growth rate of the tourism economy holds well above the one of the rich country for a long time. The growth rate differential between countries is particularly high when tourism is a luxury good. In this case, there is a faster increase in the tourism demand. As a result, investment of the small economy is boosted and its terms of trade highly improve.
|Date of creation:||Jul 2007|
|Date of revision:||Jul 2007|
|Contact details of provider:|| Postal: |
Web page: http://www.pcb.ub.edu/xreap
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carmen Dolores �lvarez-Albelo & Fernando Perera-Tallo, 2008. "The Transmission of Sustained Growth through the Terms of Trade in an Endogenous Growth Model," Review of Development Economics, Wiley Blackwell, vol. 12(2), pages 386-396, 05.
When requesting a correction, please mention this item's handle: RePEc:xrp:wpaper:xreap2007-06. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.