Dynamic Effects of Tourism Shocks on Innovation in an Open-Economy Schumpeterian Growth Model

Chu, Angus C. and Liao, Chih-Hsing and Chen, Ping-ho and Xu, Rongxin (2021): Dynamic Effects of Tourism Shocks on Innovation in an Open-Economy Schumpeterian Growth Model.

Abstract

This study explores the dynamic effects of tourism shocks in an open-economy Schumpeterian growth model with endogenous market structure. A tourism shock affects the economy via a reallocation effect and an employment effect. A positive tourism shock increases employment, which raises the level of production and the rate of innovation in the short run. However, a positive tourism shock also reallocates labor from production to service for tourists, which reduces production and innovation. Which effect dominates depends on leisure preference. If leisure preference is weak, the reallocation effect dominates, and the short-run effect of positive tourism shocks on innovation is monotonically negative. If leisure preference is strong, the employment effect dominates initially, and the short-run effect of tourism shocks on innovation becomes inverted-U. We use cross-country panel data to provide evidence for this inverted-U relationship. Finally, permanent tourism shocks do not affect the steady-state innovation rate in our scale-invariant model.

• Item Type: MPRA Paper
• Language: English
• Keywords: tourism shocks; innovation; endogenous market structure
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity; Z - Other Special Topics > Z0 - General

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