Tourism, Capital and Labor Inflows and Regional Development

Abstract

The paper considers an open rural region of a developed country with two sectors, an environmentally sensitive agricultural industry and locally operated tourism that generates pollution. We find that if the representative resident’s preference for environmentally friendly tourism services is low, the introduction of additional capital, labor, and tourists promoted by the local government may harm native inhabitants’ economic welfare. Even if tourism is environmentally friendly, the inflow of capital or labor may still have negative effects. On the contrary, if each resident’s preference for tourism service is high, an increased flow of tourists from outside may have positive effects.