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Investment in Infrastructure and Effects of Tourism Boom
Author(s) -
Yanase Akihiko
Publication year - 2015
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12166
Subject(s) - boom , tourism , economics , consumption (sociology) , production (economics) , small open economy , productivity , investment (military) , open economy , economy , microeconomics , monetary economics , exchange rate , macroeconomics , social science , environmental engineering , sociology , politics , political science , law , engineering
Abstract This paper develops a dynamic trade model of a small open economy with productivity effects of public infrastructure and inbound tourism (i.e. foreign visitors' consumption of nontradable goods produced in the home country). It is shown that the economy either specializes in the production of the nontradable good or diversifies production. In the case of specialization, a tourism boom, i.e. an increase in the foreign tourists' demand for the nontradable good, makes the economy better off. In the case of diversified production, by contrast, a tourism boom induces a deterioration in the terms of trade and the economy may be worse off.