Economic growth and market segment choice in tourism-based economies
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Many regions and countries seek to develop their tourism industry as a strategy for economic growth. A growing body of research supports the hypothesis of tourism-led growth. This paper contributes to the existing literature in two ways. First, it proposes a new mechanism for sustained tourism-led growth, emphasising the crucial importance of the market segment in which a tourist destination wishes to operate. Second, it shows how a destination that is experiencing stagnation can temporarily boost its performance and improve its long-term welfare by reorienting the supply from a highly price-sensitive mass tourism product towards a more selective one of the luxury tourism. This change in focus is discussed in the light of the experience of two Spanish archipelagos. The empirical results obtained highlight the evident success of the reorientation strategy in one of these cases. The model provides theoretical support for the implementation of tourist product restructuring policies in economies that are reliant on tourism.
KeywordsEconomic growth Tourism-based economies Market segment switching strategy Romer model Sustained growth
JEL ClassificationC52 C61 O41 Q26 Z32
Funding was provided by the Ministry of Economy and Competitiveness of the Government of Spain (Grant No. ECO2014-59067-P). University of Las Palmas de Gran Canaria (Grant CEI2018-08).
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