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Investment in Infrastructure and Effects of Tourism Boom

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  • Akihiko Yanase

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.

Suggested Citation

  • Akihiko Yanase, 2015. "Investment in Infrastructure and Effects of Tourism Boom," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 425-443, May.
    • Handle: RePEc:bla:reviec:v:23:y:2015:i:2:p:425-443
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    File URL: http://hdl.handle.net/10.1111/roie.12166
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    References listed on IDEAS

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    1. I. A. McDougall, 1965. "Non-Traded Goods and the Transfer Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 32(1), pages 67-81.
    2. Akihiko Yanase & Makoto Tawada, 2012. "History‐Dependent Paths And Trade Gains In A Small Open Economy With A Public Intermediate Good," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(1), pages 303-314, February.
    3. Chi‐Chur Chao & Bharat R. Hazari & Jean‐Pierre Laffargue & Pasquale M. Sgro & Eden S. H. Yu, 2006. "Tourism, Dutch Disease And Welfare In An Open Dynamic Economy," The Japanese Economic Review, Japanese Economic Association, vol. 57(4), pages 501-515, December.
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    5. repec:bla:econom:v:58:y:1991:i:232:p:515-29 is not listed on IDEAS
    6. Nobuhito Suga & Makoto Tawada, 2007. "International Trade with a Public Intermediate Good and the Gains from Trade," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 284-293, May.
    7. McMillan, John, 1978. "A Dynamic Analysis of Public Intermediate Goods Supply in Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 665-678, October.
    8. Manning, Richard & Markusen, James R & McMillan, John, 1985. "Paying for Public Inputs," American Economic Review, American Economic Association, vol. 75(1), pages 235-238, March.
    9. Chi‐Chur Chao & Bharat R. Hazari & Jean‐Pierre Laffargue & Pasquale M. Sgro & Eden S. H. Yu, 2006. "Tourism, Dutch Disease And Welfare In An Open Dynamic Economy," The Japanese Economic Review, Japanese Economic Association, vol. 57(4), pages 501-515, December.
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    Cited by:

    1. Akihiko Yanase, 2017. "Policy Reform and Optimal Policy Mix in a Polluted Small Open Economy with Tourism," Review of International Economics, Wiley Blackwell, vol. 25(3), pages 607-625, August.

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