The Macroeconomic Effects of Changes in Tourism Demand - A Simple Dynamic Model

Tourism Economics, Vol. 15, No.3, pp. 591–613

34 Pages Posted: 9 Jun 2009 Last revised: 11 May 2011

See all articles by Stefan Franz Schubert

Stefan Franz Schubert

Free University of Bozen-Bolzano

Juan Gabriel Brida

Universidad de la República

Date Written: June 8, 2009

Abstract

The paper studies the macroeconomic effects of an increase in tourism demand due to an exogenous increase in foreigner's income one the one hand and due to marketing activities in tourism of a small country that specializes completely in tourism production. Using a dynamic general equilibrium model, we show that an increase in tourism demand leads to an increase in relative price of domestically produced tourism services and rises 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. We also discuss the effects of a temporary demand stimulus, which is shown to have nonetheless permanent effects on the country's net foreign asset position and agents' consumption.

Keywords: tourism demand, marketing expenditures, economic dynamics, temporary demand shocks

JEL Classification: F41, M39

Suggested Citation

Schubert, Stefan Franz and Brida, Juan Gabriel, The Macroeconomic Effects of Changes in Tourism Demand - A Simple Dynamic Model (June 8, 2009). Tourism Economics, Vol. 15, No.3, pp. 591–613, Available at SSRN: https://ssrn.com/abstract=1416135

Stefan Franz Schubert (Contact Author)

Free University of Bozen-Bolzano ( email )

Via Sernesi 1
39100 Bozen-Bolzano (BZ)
Italy
+390471013495 (Phone)

Juan Gabriel Brida

Universidad de la República ( email )

Av. 18 de Julio
Montevideo, 1968
Uruguay

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