The macroeconomic consequences of quality improvement policies in advanced tourism-led economies

Abstract

Traditional sun-and-beach destinations in advanced economies are facing increased competition from cheaper destinations in emerging countries. In contrast to other capital-intensive sectors, tourism, as a service-based activity, cannot make significant productivity gains to improve its competitiveness. Moreover, tourism-led economies have an underdeveloped industrial sector that limits opportunities for economic diversification. In this context, this paper presents a three-country dynamic CGE model to analyze the role of tourism quality improvements to achieve sustainable long-term economic growth in mature destinations in a context of international capital movements. According to the results, tourism-led economies may converge in real salaries with wealthier economies when focusing on high-end visitors. On the other hand, cheaper destinations achieve better returns from tourism activity in diversified economies.