Less Developed Countries, Tourism Investments and Local Economic Development

This paper analyzes the forward linkages of a multinational's investment in a resort that kicks off tourism activity in a less developed country. We show that, under quite natural assumptions, overnight stays are increasing in the number of differentiated tourism-related goods and services. These goods and services, if supplied by the local community, represent forward linkages of FDI in tourism. We investigate the multinational's incentives to promote, reduce or eliminate these forward linkages and the effectiveness of some policy instruments available to a local government to leverage on the presence of FDI and to stimulate domestic entrepreneurship.