Tourism and Industrial Agglomeration

Tourism generates considerable income and employment in host countries and regions, which substantially improves local economies. Meanwhile, the manufacturing sector remains the most important part in regional and national economies. This paper investigates their interdependence through a general-equilibrium analysis. On the one hand, a tourism boom is pro-industrialization because the income generated by tourism attracts more manufacturing firms and, on the other hand, de-industrialization for attracting labour from the manufacturing sector. We clarify conditions of trade balances in three sectors. The welfare analysis clarifies conditions for the smaller country to be better off, and conditions for the equilibrium to be optimal.