A multisector growth model for testing the Tourism-Led Growth versus the Beach Disease hypotheses

This paper presents a novel theoretical characterization of how tourism services stimulate (deter) economic growth that integrates both Tourism-Led and Beach Disease hypotheses. We build a multisector growth model with the appealing feature that it delivers a linear growth equation that can be easily estimated by practitioners using conventional regression methods. We therefore build a bridge between theory and empirics. Under mild assumptions, we demonstrate theoretically that GDP per capita growth rate depends on the share the tourism sector represents over total GDP, Total Factor Productivity, and other determinants of the steady state of the economy. A testable implication is that a higher specialization in tourism services yields positive GDP per capita growth rates consistent with the Tourism-Led growth hypothesis if and only if the tourism sector is more productive than the rest of the economy. Otherwise, greater tourism specialization results in degrowth paths that are compatible with the Beach Disease.