Tourism and Economic Development: Evidence from Mexico’s Coastline
March 10, 2016Macro, Trade, and Finance Seminar Series

Speaker: Cecile Gaubert is an Assistant Professor of Economics at UC Berkeley. More »

Abstract: : Tourism is one of the most visible and fastest growing facets of globalization in developing countries. Despite widespread policy interest, however, we currently have limited empirical evidence on the economic consequences of this channel of market integration. This paper combines a rich collection of Mexican microdata with a quantitative spatial equilibrium model and a new empirical strategy to estimate the long-run economic effects of tourism. We begin by estimating a number of reduced form effects of tourism on local economic outcomes in today’s cross-section of Mexican municipalities. To base these estimates on plausibly exogenous variation in long-term tourism exposure, we exploit geological and oceanographic variation in beach quality along the Mexican coastline to construct instrumental variables. To guide the estimation of tourism’s welfare implications, we then write down a spatial equilibrium model of trade in goods and tourism services, and use the reduced form moments to inform its calibration for counterfactual analysis. We find that tourism causes large and significant increases in long-run local real GDP relative to less touristic regions. Contrary to much of the existing literature on tourism and development, these effects are driven by sizable positive spillovers on traded goods production. In the aggregate, however, we find that these spillovers are largely offset by reductions in agglomeration economies among less touristic regions, so that the aggregate national gains from tourism are mainly driven by a classical market integration effect.

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Last Updated: Mar 03, 2016

The Macro, Trade, and Finance Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers from the fields of macroeconomics, growth, trade, international integration, and finance to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Last Updated: Jul 27, 2015

Event Details
  • Date: March 10, 2015
  • Location: MC C2-137
  • Time: 12:30 - 2:00 PM
  • CONTACT: Shweta Mesipam

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