This model states that the manufacturing industry is more dependent on intensive knowledge while the tourism industry is more dependent on intensive resources. The tourism sector is given more priority by those countries that are full of natural resources and cultural heritage. Technological change, increase in the price of goods and services, and exploitation of natural resources — these three factors determine the growth of the economy by the help of cultural tourism. If the rate of the change of relative prices is very high, then it can overcome the slow rate of technological changes. The experts also believe that growth of cultural tourism and the economy also depend on the consistent exploitation of the resources that are naturally available.
A hike in the exploitation increases the growth suddenly, but it cannot ensure long-term sustainable growth because the natural resources have a limit. Tourist goods have a vital role to play in this case. It is being noticed that the international market is emphasizing greatly on the rate of productivity and utility of the tourist goods so that the shortcomings of the slow technological change can be overcome (Abankina, 2013). As it does not hugely affect the natural resources, this strategy is extremely efficient for ensuring the long-term economic growth through the flow of cultural tourism.
There are a limited number of studies, surveys, and research that effectively addresses the proper nature of the economic impact driven by the cultural tourism. The most effective and significant trend, in this case, is the use of CGE (Complete General Equilibrium) model. This model uses actual data. This model also helps to evaluate the impact of exogenous shocks on the economy. If the tourist demand decreases, CGE allows a drop down in the prices of the products and services. Several studies have been conducted with the help of CGE. These studies show that foreign tourism is indeed much highly taxed than the domestic tourism.
This effectively contributes to the economic growth in a positive way, because the economic loss from the subsidized or less taxed price is made up by the highly taxed foreign tourism (Mankiw, Romer, & Weil, 1992). There are various sectors related to cultural tourism. Sectors like hotels, restaurants, and transportations are directly influenced by the tourism. But other sectors like the food, clothes and apparel industry are indirectly affected. Most of these sectors try to restrict or slow down the production output whenever there is a competitive exchange rate. This has a huge influence over the tourists demand and the real returns.