International Tourism in a North–South Model: A Theoretical Analysis
| Author | Priya Brata Dutta,Manash Ranjan Gupta |
| DOI | 10.1177/0015732519831804 |
| Published date | 01 May 2019 |
| Date | 01 May 2019 |
| Subject Matter | Articles |
International Tourism
in a North–South
Model: A Theoretical
Analysis
Manash Ranjan Gupta1
Priya Brata Dutta2
Abstract
We develop a static North–South model where North and South are interlinked
through international tourism. Northern consumers have demand for south-
ern non-tradable tourism service. Northern development generates additional
income in the hands of northern consumers and thus raises their demand for
tourism service in South. This leads to a reallocation of resources between the
tourism sector and the non-tourism sector in South and thus affects its nature of
development. We derive many interesting results from this model. International
tourism can act as an engine to solve the poverty problem of southern workers
through functional redistribution of southern income. However, it can also act
as a constraint to southern economic growth through reduction in its level of
investment. Northern development may lower the level of southern real income
deflated by the price of southern non-traded tourism service and thus may lead
to a welfare loss when the preferences of southern consumers are biased in
favour of tourism service. In the case of a labour surplus South, northern devel-
opment always raises the real income of South through international tourism.
JEL Codes: F22, Z32
Keywords
North–South model, international tourism, international trade, labour surplus
economy
Article
1 Economic Research Unit, Indian Statistical Institute, Kolkata, West Bengal, India.
2 Economics and Politics Department, Visva-Bharati University, Santiniketan, West Bengal, India.
Corresponding author:
Priya Brata Dutta, Economics and Politics Department, Visva-Bharati University, Santiniketan, West
Bengal 731235, India.
E-mail: priyabratadutta@gmail.com
Foreign Trade Review
54(2) 91–114, 2019
© 2019 Indian Institute of
Foreign Trade
Reprints and permissions:
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DOI: 10.1177/0015732519831804
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92 Foreign Trade Review 54(2)
Introduction
Tourism is an important source of foreign exchange earnings for many less devel-
oped countries. For example, in 1995, Hong Kong being a very small country
earned about US$1 billion from tourism and this accounted for 8 per cent of its
Gross Domestic Product (GDP). Also, many unskilled workers get employment
opportunities with the promotion of tourism, and, in another small country, Nepal,
tourism sector has the second highest share in national employment as well as in
national income, next to agriculture. In Cyprus, tourism activities account for
about 20 per cent of its GDP in 2014. In 2012, Jamaica earned about US$15 bil-
lion from tourism; and it was 4.5 per cent of her GDP. In Spain, tourism activities
represented 10.9 per cent of the GDP and 11.9 per cent of total employment in
2014. In Canary Islands, 31.4 per cent of GDP and 35.9 per cent of employment
came from the tourism sector in that year. Also the inflow of tourists from various
countries generates social externalities on the host country and their interaction
with domestic residents help to remove social obstacles to economic develop-
ment. Governments in many countries often invest to develop tourism
infrastructure.
There exists a lot of debate about the economic benefits of tourism develop-
ment in a less developed economy. A few works analyse the economic effects of
tourism without developing formal models.1 Copeland (1991) makes the pioneer-
ing attempt to analyse these effects using a static competitive general equilibrium
model of a small open economy, and then attempts to find out conditions under
which tourism would be welfare improving. However, Copeland (1991) assumes
the expansion of tourism to be exogenous to the system and does not model the
source of expansion. In order to analyse the interaction between source and effects
of international tourism, a North–South2 framework is more appropriate than a
small open economy framework. A North–South framework can analyse how
benefits of economic growth in developed countries are spread to less developed
countries through the expansion of international tourism. Many other general
equilibrium models of small open economies have been developed extending
Copeland (1991) model and reanalysing its results.3 However, we do not find any
North–South model in the literature linking North and South through international
tourism. The existing North–South models available in the literature on trade and
development focus on the linkage between North and South through trade, factor
mobility and technology transfer4 but not through international tourism.
In this article, we develop a static North–South model where North and South
are interlinked through international tourism. Northern consumers have demand
for southern non-tradable tourism services. Northern development generates addi-
tional income in the hands of northern consumers and thus raises the demand for
tourism service in South. This leads to a reallocation of resources between the
tourism sector and the non-tourism sector in South, and thus affects its nature of
development.
We derive many interesting results from this model. First, international tourism
can act as an engine to solve the poverty problem of southern workers through
functional redistribution of southern income. However, it can also act as a con-
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