A general equilibrium approach to tourism and welfare: The case of Macao

Macao has been witnessing spectacular economic growth in recent years. The ongoing boom is mainly driven by rapid tourism growth reflected in massive tourist arrivals and foreign capital inflow. Although Macao is praised as an ‘economic wonder’, serious externalities have emerged, raising concerns about the sustainability of the city's long-term development. Using a modified simple general equilibrium model, this paper shows how economic, social, environmental and political externalities accompanying rapid tourism growth may possibly reduce the net welfare of host communities. The paper concludes that comprehensive tourism policies leading to a sustainable development should be developed in a broader social framework.