Tourism and Economic Development: Evidence from Mexico’s Coastline

Abstract

Tourism is a fast-growing services sector in developing countries. This paper combines a rich collection of Mexican microdata with a quantitative spatial equilibrium model and a new empirical strategy to study the long-term economic consequences of tourism both locally and in the aggregate. We find that tourism causes large and significant local economic gains relative to less touristic regions that are in part driven by significant positive spillovers on manufacturing. In the aggregate, however, these local spillovers are largely offset by reductions in agglomeration economies among less touristic regions, so that the national gains from trade in tourism are mainly driven by a classical market integration effect. (JEL L60, L83, O14, O18, R11, Z31, Z32)A conventional view in the literature on economic growth and development is that the production of traded goods is subject to dynamic productivity improvements, whereas the services sector is perceived to be more stagnant. 1 In line with this view, the locus of agglomeration economies is generally assumed to be the manufacturing sector, rather than services. This asymmetry has important implications for the growth strategies of developing countries, and whether they should prioritize the development of traded goods producing sectors. At the same time, there is relatively little empirical evidence on the economic consequences of the development of the services sector in developing countries, and whether the reallocation of factors of production into services can give rise to adverse long-term effects both locally and in the aggregate. 2 This paper sets out to study the economic consequences of tourism, a fast-growing services sector in developing countries. Tourism involves the export of otherwise non-traded local services by temporarily moving consumers across space, rather than 1 This view is in the tradition of Baumol (1967). See Herrendorf, Rogerson, and Valentinyi (2014) for a review of the recent literature, and McMillan and Rodrik (2011) for an analysis in the context of developing countries. 2 See, for example, Copeland (1991) for an early theoretical discussion of tourism as a potential "Dutch disease."

The Transmission of Commodity Price Super-Cycles

“…Allcott and Keniston [2014] use geographical variation to study the impact of oil and gas endowments in the U.S. on local manufacturing revenue, employment and productivity. Faber and Gaubert [2016] use geographic variation to examine the long-term economic consequences of a shock to nontradable industries -the expansion of tourism in Mexican coastal regions. Both papers exploit agglomeration externalities triggered by the boom with long-run productivity and demand implications.…”

“…Therefore, in the case of Allcott and Keniston [2014], the result that oil booms do not reduce employment in the tradable sector is not necessarily opposed to the predictions of our model as oil production is a relatively skill-intensive activity. Likewise, in the case of Faber and Gaubert [2016], increases in tourism, which lead to increases in manufacturing GDP, can be explained by different relative skill intensities across sectors. In addition we focus on short and medium run effects, while these papers focus on long-run effects in which agglomeration externalities can play a role.…”

“…In this way, we are able to identify the distinctive effects of different transmission mechanisms of commodity price super-cycles allowing for heterogeneous effects across and within sectors. Therefore, on empirical grounds, we also speak to the literature examining the consequences of local economic shocks including import competition shocks [Autor et al, 2013, Dix-Carneiro and Kovak, 2017, Costa et al, 2016, natural resource abundance [Allcott andKeniston, 2014, Faber andGaubert, 2016], or more broadly macroeconomic shocks [Blanchard and Katz, 1992]. 6 We contribute to this literature in two main ways.…”

Spatial Linkages, Global Shocks, and Local Labor Markets: Theory and Evidence

“…These frameworks include: (i) Neoclassical trade theories with external economies of scale (as inEthier (1982a,b)) and without (as inAnderson (1979) andEaton and Kortum (2002)); (ii) New trade theory models with homogeneous firms (as inKrugman (1980)); (iii) New economic geography models (as inKrugman (1991) and Allen and Arkolakis (2014)); (iv) Roy spatial assignment models (as in Galle, Rodriguez-Clare, and Yi (2017) andAdão (2015)). Finally, the model specified without trade frictions yields predictions equivalent to the framework inRosen (1979)-Roback (1982 and, more recently, inKline and Moretti (2014).4 This step is distinct from other works in spatial economics, that invert structural residuals using the entire general equilibrium structure of the model, as in Allen and Arkolakis (2014),Monte, Redding, and Rossi-Hansberg (2018), andFaber and Gaubert (2016).…”

“…The approach ofChamberlain (1987) has been used in partial equilibrium models byBerry, Levinsohn, and Pakes (1999),Petrin (2002), andReynaert and Verboven (2014). In general equilibrium, model-implied instruments have been also used recently in Monte, Redding, and Rossi-Hansberg (2018),Faber and Gaubert (2016),Eckert and Peters (2018), andAllen and Donaldson (2018). Our work is most close to the approach of Allen, Arkolakis, and Takahashi (2018) in a gravity setup.…”