Tourism and Industrial Agglomeration

Tourism generates increased income and employment in host countries and regions which substantially improves local economies. On the other hand, the manufacturing sector remains the most important part in regional and national economies. By explicitly embedding a nontraded good sector into a new economic geography model, we were able to investigate the interdependence between the tourism sector and the manufacturing sector. We found that, on the one hand, a tourism boom results in de-industrialization because it attracts labor from the manufacturing sector and, on the other hand, pro-industrialization because a boom brings larger revenue which attracts more manufacturing firms. Furthermore, a welfare study showed use that the expenditure share in the tourism sector is essential to determine whether a larger country is better than a smaller one and whether the manufacturing sector is overor under-agglomerated. Finally, trade balances and travel costs are also discussed. ∗Graduate School of Management, Kagawa University, Kagawa 760-8523, Japan. E-mail: [email protected]. †Center for Research of Private Economy, Zhejiang University, Zhejiang 310027, China. E-mail: [email protected].