Lanza, A.; (1998) Tourism specialisation and economic growth. Doctoral thesis , University of London.

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Abstract

This thesis focuses on the relationship between tourism policy and economic growth. Primarily it evaluates the effects of specialising in tourism on the growth performance of small economies and in particular the effects of tourism specialisation based on natural resources. A secondary but related question is how do changes in the quality of natural resources affect the relationship between specialisation and growth? These questions are considered in the framework defined by recent literature on endogenous growth theory [EG]. Consider a two-sector economy, where growth is driven by the accumulation of sector-specific human capital. The two sectors differ in their associated rates of potential learning. If the low- (no-) learning sector is defined as Tourism and the other as Manufacturing, the condition for balanced growth, under complete specialisation (i.e., equal per capita growth rate in both countries), is the presence of homothetic preferences are those spelled out in Lucas (1988). This approach provides a rather promising outlook for economies characterised by a comparative advantage in the tourist sector - as long as the elasticity of substitution between tourism and other goods, produced under decreasing marginal costs, is low. However, this result is based on a characterisation of the demand side that ignores an important feature of the market for tourist services: the income elasticity of the tourist may be other than one. To take account of a non-unitary income elasticity, the EG conditions for balanced growth should be redefined under a non-(quasi) homothetic utility function. After presenting the model, two empirical analyses, using different techniques, are provided. If consumers allocate a constant share of their (increasing) income toward financing their holidays and two, different types of tourist goods exist - one based on natural resources and the other on activities unrelated to natural resources and supplied at decreasing marginal costs - then a reduction in the quality of a country's natural resources may weaken the capacity of the country's tourist sector to retain a non-decreasing share of the market. This idea is based on the hypothesis that the two tourist goods are vertically differentiated. Quality, however, depends on the rate of exploitation. Lowering the quality lessens the value of the luxury good attached to the resource-based good. This framework should allow for a description of the relationship between the rate of exploitation of natural resources and the conditions which allow economies specialising in tourism to reach a balanced growth path, in a market where more than one tourist good is offered.

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