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Unemployment Dynamics in a Short-Run Two-Sector Model of a Tourism Exporting Small Open Economy

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  • Stefan F. Schubert

    (Free University of Bozen-Bolzano, School of Economics and Management, Piazza Università 1, I-39100, Italy)

Abstract

This paper investigates the effects of an increase in inbound tourism demand on unemployment in a small open economy, comprising an industrial sector and a tourism sector. The demand of foreign tourists may either rise exogenously (for example, owing to an increase in foreigners' income) or because of advertising efforts of the domestic country. The author develops a short-run, two-sector model with separated non-Walrasian labour markets, characterized by search of the Pissarides type. Unemployment results from time consuming and costly matching of vacancies with searching agents. A 25% long-run increase in foreigners' tourism demand causes unemployment dynamics in both sectors. The economy-wide unemployment rate shows a nonmonotone adjustment and is reduced by roughly 0.3 percentage points. Similar results are obtained if the demand increase is due to successful advertising. The model therefore supports the popular view that tourism can reduce unemployment.

Suggested Citation

  • Stefan F. Schubert, 2013. "Unemployment Dynamics in a Short-Run Two-Sector Model of a Tourism Exporting Small Open Economy," Tourism Economics, , vol. 19(5), pages 1049-1076, October.
    • Handle: RePEc:sae:toueco:v:19:y:2013:i:5:p:1049-1076
    DOI: 10.5367/te.2013.0334
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    References listed on IDEAS

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    1. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, April.
    2. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, April.
    3. Heer, Burkhard & Schubert, Stefan Franz, 2012. "Unemployment and debt dynamics in a highly indebted small open economy," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1392-1413.
    4. Schubert, Stefan F., 2011. "The effects of total factor productivity and export shocks on a small open economy with unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1514-1530, September.
    5. Hobijn, Bart & Sahin, Aysegül, 2009. "Job-finding and separation rates in the OECD," Economics Letters, Elsevier, vol. 104(3), pages 107-111, September.
    6. Shi, Shouyong & Wen, Quan, 1997. "Labor market search and capital accumulation: Some analytical results," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1747-1776, August.
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    Cited by:

    1. Stefan F. Schubert, 2016. "A short-run model of a two-sector economy with tourism and unemployment," Tourism Economics, , vol. 22(4), pages 763-778, August.
    2. Stefan F Schubert & Günter Schamel, 2021. "Sustainable tourism development: A dynamic model incorporating resident spillovers," Tourism Economics, , vol. 27(7), pages 1561-1587, November.
    3. Luisito Bertinelli & Olivier Cardi & Romain Restout, 2015. "Technical Change Biased Toward the Traded Sector and Labor Market Frictions," Working Papers halshs-01252508, HAL.
    4. Emmanuel Duguet & Yannick L'horty & Florent Sari, 2023. "Agglomeration effects and unemployment to work: Evidence from French data," Papers in Regional Science, Wiley Blackwell, vol. 102(1), pages 129-166, February.

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