Economic Decline and the Birth of a Tourist Nation

Abstract

Price competitiveness is key for tourists’ destination choice. In the study, we evaluate the effects of an economic decline caused by non-tourism industry on a tourist destination’s price competitiveness. An econometric model of hotel revenue function is estimated in the study. Specifically, we estimate hotel revenue functions at the regional level in Norway to investigate how the crude oil price collapse and the subsequent economic decline influenced tourism demand in Norway. This type of cross-sectorial effect of non-tourism industries on tourism competitiveness has been little discussed in the tourism literature. The results show that the fall in crude oil price boosted tourism growth in Norway through a weakening of the local currency. This means tourism development is not always associated with economic growth, as discussed in most of the tourism literature. There might be some upper bounds of wealth in a nation where additional growth does not foster further tourism development due to the inflationary effects of economic growth. The study therefore adds new insights into the literature on tourism and economic growth.