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.High growth, Small tourism countries, Terms of trade, Luxury good, Dynamic general equilibrium.

The international trade as the sole engine of growth for an economy

Can international trade act as the sole engine of growth for an economy? If yes, what are the mechanisms through which trade operates in transmitting permanent growth? This paper answers these questions with two simple two-country models, in which only one country enjoys sustained growth in autarky. The models differ in the assumptions on technical change, which is either labour- or capital-augmenting. In both cases, the stagnant economy imports growth by trading. In the first model, growth is transmitted because of permanent increases in the trade volume. In the alternative framework, the stagnant economy imports sustained growth because its terms of trade permanently improve.international trade; stagnant economies; growth transmission; mechanisms of transmission.

The commons and anti-commons problems in the tourism economy

Countries specialised in tourism tend to face two problems with contradictory effects: the commons and the anti-commons, which lead to tourism over- and under-production, respectively. This paper develops a two-period model to analyse the joint effects of both problems on a small and remote tourism economy. Congestion and the complementariness between foreign transport and local tourism services are key features in this type of markets. As a result, direct selling and the presence of foreign tour-operators emerge as possible market arrangements with different implications in terms of welfare and public intervention. Four main results are obtained. First, in the direct selling situation the optimal policy depends on the relative importance of the problems. Second, the existence of tour-operators always leads to tourism over-production. Third, the presence of a single tour-operator does not solve the congestion problem. Lastly, the switch from several tour-operators to a single one is welfare reducing.commons, anti-commons, tourism, direct selling, tour-operators, optimal policy

Growing through trade in intermediate goods: the role of foreign growth and domestic tariffs

We show that pure Ricardian trade can account for the empirical evidence that domestic growth is more affected by foreign growth than by trade openness. To do this, we develop a two‐country model involving a backward economy that exchanges intermediate goods with a faster growing country. We obtain three main results regarding growth and welfare of the backward economy: (i) the growth‐enhancing comparative advantage is facilitated by faster foreign growth; (ii) the growth rate may be negatively affected or unaffected by a domestic tariff, while it is always positively impacted by foreign growth; and (iii) a domestic tariff could be welfare‐improving

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

The Commons and anti-commons problems in the tourism economy

Countries specialised in tourism tend to face two problems with contradictory effects: the commons and the anti-commons, which lead to tourism over- and under-production, respectively. This paper develops a two-period model to analyse the joint effects of both problems on a small and remote tourism economy. Congestion and the complementariness between foreign transport and local tourism services are key features in this type of markets. As a result, direct selling and the presence of foreign tour-operators emerge as possible market arrangements with different implications in terms of welfare and public intervention. Four main results are obtained. First, in the direct selling situation the optimal policy depends on the relative importance of the problems. Second, the existence of tour-operators always leads to tourism over-production. Third, the presence of a single tour-operator does not solve the congestion problem. Lastly, the switch from several tour-operators to a single one is welfare reducing

Growing through trade : the role of foreign growth and domestic tariffs

This paper studies the role of trading partner' growth and a domestic import tariff in the possibility of growing through trade. To this purpose, a Ricardian model is developed in which a backward economy seeks to increase its long-run growth rate simply by trading with a faster growing partner. It is found that domestic growth may be either negatively affected or unaffected by a domestic import tariff, while it is always positively impacted by foreign growth. Furthermore, convergence in growth rate can emerge both with an import tariff and under free trade. Ours results are consistent with the empirical evidence

Human capital and consumation over the live cycle : a synthesis

This paper presents a life cycle model that contains the Becker¿s (1975) and Heckman¿s (1976) models as special cases. Contrary to the previous literature, the model can explain the life cycle hypothesis and the maximum in the consumption profile without appealing to the rupture of typical neoclassical assumptions and for any value of intertemporary elasticity of substitution. An estimation of the consumption demand for Spanish case shows that current earning is a significant and robust variable explaining the consumption pattern- El presente documento desarrolla a un modelo de ciclo vital que contiene los modelos de Becker (1975) y Heckman (1976) como casos especiales. Al contrario que la literatura previa, el modelo puede explicar la hipotesis del ciclo vital, así como el máximo alcanzado en los perfiles de consumo sir recurrir a la ruptura the los supuestos típicos neoclásicos, y para cualquier valor de la elasticidad intertemporal de substitución. Una estimación de la demanda de consumo para España muestra que los ingresos actuales son una variable significativa y robusta explicando los patrones de consum

The role of complementarity of goods in a mixed bundling strategy

This paper studies optimal pricing when a monopolist firm produces two complementary goods and may undertake a bundling strategy. To do so, a modified version of Yan and Bandyopadhyay’s (2011) framework is used, in which the efficacy of the bundling strategy depends positively on the degree of complementarity of goods. Two main results are obtained. First, mixed bundling turns out to be the optimal strategy for the firm, since it yields higher profits than pure unbundling and pure bundling. Second, sales and profits from the bundling (unbundling) strategy increase (decrease) as the products become more complementary, which entails an empirically sensible behavior