Dynamic effects of tourism shocks on innovation in an open-economy Schumpeterian growth model

Angus Chu, Chih-Hsing Liao, Rongxin Xu and Ping-Ho Chen

Economic Modelling, 2024, vol. 131, issue C

Abstract: International travel restrictions during the COVID-19 pandemic drastically reduced the number of tourists. This study explores the dynamic effects of tourism shocks in an open-economy Schumpeterian 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 production and innovation in the short run. However, a positive tourism shock also reallocates labor from production to service for tourists, which reduces production and innovation. 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, which is consistent with the stylized facts that we document using cross-country data. Finally, permanent tourism shocks do not affect the steady-state innovation rate in our scale-invariant model.

Keywords: Tourism shocks; Innovation; Endogenous market structure (search for similar items in EconPapers)
JEL-codes: O30 O40 Z32 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Dynamic Effects of Tourism Shocks on Innovation in an Open-Economy Schumpeterian Growth Model (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323004315

DOI: 10.1016/j.econmod.2023.106619

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