Tourism and growth in a dynamic model of trade

This paper investigated the relationship between tourism and growth in a dynamic model of trade. Tourism is incorporated in the model by allowing non-traded goods and services to be consumed by tourists along with domestic residents. It explores the interrelationship between growth in tourism, capital accumulation, per capita consumption and the terms of trade in a dynamic setting. We show that tourism can substitute for domestic savings by acting as a time-saving device. The analysis is carried out for both the small and the large country case. For the small country case welfare necessarily increases with the growth in tourist consumption of non-traded goods.