Economic Growth and Inequality with Tourism in an Integrated Walrasian-General Equilibrium and Neoclassical-Growth Theory

Abstract

This paper studies dynamic interdependence between economic growth, tourism, and inequalities in income and wealth in a small open economy. We build the dynamic model in an integrated Walrasian-general equilibrium and neoclassical-growth theory for a small open economy with multiple sectors and heterogeneous households in a perfectly competitive economy. The economy consists of one service sector which supplies non-traded services and one industrial sector which produces traded goods. We treat wealth accumulation and land distribution between housing and supply of services as endogenous variables. We show that the motion of the economy with J types of households is given by J nonlinear differential equations. We simulate the motion of the system with three groups of households. We also conduct comparative dynamic analysis with regards to the rate of interest, the price elasticity of tourism, the global economic condition, and the rich class’ human capital, and the rich class’ propensity to consume housing.