Tourism as an automatic stabilizer

Jean-Pierre Laffargue ()
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Jean-Pierre Laffargue: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We explore how the damaging effects of a sudden stop in capital inflows to a small open economy can be dampened by an increase in spending by foreign tourists. Tourism reduces the relative importance of the traded good sector, which is especially sensitive to a rise in the cost of foreign capital. Moreover, the lower prices of non-traded goods attract more tourists whose spending slows down the price deflation and increases still more the relative importance of the non-traded good sector. This stabilizing effect increases with theprice elasticity of the tourist demand function that is when the services to tourists supplied by the economy have better substitute in other countries.

Keywords: Tourism; sudden stop; automatic stabilizer (search for similar items in EconPapers)
Date: 2014-09-01
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Published in Recherches Economiques de Louvain - Louvain economic review, 2014, 80 (3), pp.5-20

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-01450971

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