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Dynamic effects of tourism shocks on innovation in an open-economy Schumpeterian growth model

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  • Chu, Angus C.
  • Liao, Chih-Hsing
  • Xu, Rongxin
  • Chen, Ping-Ho

Abstract

International travel restrictions during the COVID-19 pandemic drastically reduced the number of tourists. This study explores the dynamic effects of tourism shocks in an open-economy Schumpeterian model with endogenous market structure. A tourism shock affects the economy via a reallocation effect and an employment effect. A positive tourism shock increases employment, which raises production and innovation in the short run. However, a positive tourism shock also reallocates labor from production to service for tourists, which reduces production and innovation. If leisure preference is weak, the reallocation effect dominates, and the short-run effect of positive tourism shocks on innovation is monotonically negative. If leisure preference is strong, the employment effect dominates initially, and the short-run effect of tourism shocks on innovation becomes inverted-U, which is consistent with the stylized facts that we document using cross-country data. Finally, permanent tourism shocks do not affect the steady-state innovation rate in our scale-invariant model.

Suggested Citation

  • Chu, Angus C. & Liao, Chih-Hsing & Xu, Rongxin & Chen, Ping-Ho, 2024. "Dynamic effects of tourism shocks on innovation in an open-economy Schumpeterian growth model," Economic Modelling, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323004315
    DOI: 10.1016/j.econmod.2023.106619
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    More about this item

    Keywords

    Tourism shocks; Innovation; Endogenous market structure;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Z32 - Other Special Topics - - Tourism Economics - - - Tourism and Development

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