Tourism and economic development in a cash-in-advance economy

This paper examines the impact of tourism on welfare in a cash-in-advance economy. As a result of the expansion in tourism, the price of the non-traded good increases. This gives rise to a terms-of-trade improvement. However, the cash-in-advance constraint causes a distortion in consumption. For tourism demand, where the gain from the terms-of-trade improvement dominates (does not dominate) the loss from the consumption distortion, tourism is welfare-improving (welfare-reducing). A similar condition for welfare improvement (deterioration) holds for a model of capital inflow and endogenised tourism.