Tourism, jobs, capital accumulation and the economy: A dynamic analysis

Abstract

This paper examines the effects of tourism on labor employment, capital accumulation and resident welfare for a small open economy with unemployment. A tourism boom improves the terms of trade, increases labor employment, but lowers capital accumulation. The reduction in the capital stock depends on the degree of factor intensity. When the traded sector is weakly capital intensive, the fall in capital would not be so severe and the expansion of tourism improves welfare. However, when the traded sector is strongly capital intensive, the fall in capital can be a dominant factor to lower welfare. This immiserizing result of tourism on resident welfare is confirmed by the German data.tourism ; employment ; capital accumulation ; welfare