Tourism and externalities in an urban context: Theoretical model and empirical evidence

Although the majority of economists defend the positive role of tourism growth in global development, a number of tourism geography studies present divergent views on the local impact of tourism overgrowth on host communities. To examine the issue, this study develops a simple theoretical framework to illustrate that liberal economic doctrines shape host communities' policy-making towards a higher degree of inbound tourism than is optimal without considering the externalities accompanying tourism booms. Evidence from Macao and Hong Kong shows that massive inflows of tourists in the face of greater tourism openness tend to generate divergent impacts on both cities depending on their physical and socioeconomic conditions and thus lend support to the theoretical predictions.