International Tourism in a North-South Model: A Theoretical Analysis

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 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 development always raises the real income of South through international tourism.