good although there is also substantial variance. Garín-Muñoz and Pérez Amaral (2000) find elasticities of 0.97 and 0.91 and Song et al. (2000) of around 2. Maloney and Montes-Rojas (2005) study substitution among Caribbean islands by type of tourist origin and find a very high price elasticity of close to 4.9, confirming that tourism is a luxury good with income elasticity above 2.

Small islands may suffer from the problem known as Dutch Disease<sup>4</sup> that results in an unfavorable over-appreciated exchange rate (Bertram, 2009). <mark>While most often Dutch Disease refers to natural resource discovery, it can also refer to any development that results in a large inflow of foreign currency. The natural beauty endowment of small islands (warm temperatures, beaches, etc. that result in an a</mark> bundance of tourism-related amenitie <mark>s) can be considered the natural resource on which tourism develops and brings foreign exchange inflows. T</mark> herefore, an expansion of the tourism industry may result in a lack of competitiveness of other exports and may increase the relative price of non-tradable goods (see the discussion in Lederman and Maloney, 2007). This leads to the fact that the macroeconomic consequences of tourism growth should be considered for appropriate policy design.

# **IIb. Digital media**

Information and digital presence play a central role in the tourism industry. Rauch and Trindade (2002, 2003) have emphasized the role that informational barriers play in restricting trade, and how private networks can overcome those barriers. Informational barriers are defined as the barriers that arise because of asymmetric or incomplete information in a given market. Trade is affected by information about the counterpart, and this is relevant for the tourism service exports. For tourism, Gawande, Maloney, and Montes-Rojas (2011) find a similar mechanism at work by involving transboundary business-government networks. They show that the lobbying in the destination countries increases the level of tourism and reduces the price elasticity of demand, suggesting that the destinations have the ability to differentiate their products. Both are of magnitudes that suggest important policy implications for developing economies.

Informational barriers are reduced by digital media. There is a large literature in tourism-related journals (Leung et al., 2013, Standing et al., 2014, Li et al., 2018) that highlights the role of digital media in overcoming informational barriers. They all recognize that social media and digital information play a central role in the shape of the tourism industry, involving both demand (e.g., “The newly released _World Travel Market 2011 Industry Report_ announced that more than onethird of all leisure travelers in the United Kingdom choose their hotels on the basis of social media sites like TripAdvisor and Facebook” Leung et al. 2013, p.4) and supply (the market share for intermediation of large websites has increased considerably over traditional travel agencies). Leung et al. (2013) state that “social media have been widely adopted by travelers to search, organize, share, and annotate their travel stories and experiences through blogs and microblogs (e.g., Blogger

> 4 <mark>The Dutch Disease is the causal relationship between growth of a specific sector (for example, natural resources) and a decline in other sectors (like the manufacturing sector or agriculture). As revenues increase in the growing sector, the nation's currency appreciates compared to currencies of other nations. This results in the nation's other exports becoming relatively more expensive for other countries to buy, and imports becoming cheaper, making those other sectors less competitive.</mark>

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