Is specialization in tourism Harmful to economic growth?

Abstract

A comparison between the growth-effect of specialization in tourism to the growth-effect associated with specialization in manufacturing, could lead to the conclusion that specialization in tourism is detrimental to economic growth. The continuous creation and introduction of new methods and products characterizes the manufacturing sector to an extent unknown to other sectors. The endogenous component of technical progress in manufacturing is of ten regarded as the factor that makes the whole economy grow at a non-diminishing rate in the long run. So, how can an economy without a manufacturing sector, and therefore deprived of its main "engine of growth", grow at rates comparable to chose of economies specialized in manufacturing? The answer lies in how the price of the tourist good changes over time in relation to the price of the manufacturing good so as to partially or entirely offset the sectoral gap in productivity growth. This point can easily be shown by means of a simple two-sector model of endogenous growth, where the growth effects of international specialization are analysed and tested by means of an econometric model.