Specialization or diversification: A theoretical analysis for tourist cities

Abstract This paper uses a theoretical approach to investigate the polarization of economic structure in Macao as a reflection of its increased specialization in casino tourism. Las Vegas is used as a benchmark city, with its tourism diversification ending up with less gaming and more non-gaming activity. We show that push factors are crucial for Macao but pull factors are important to Las Vegas due to different market conditions, such as tourism amenities and customer preferences. We also find that it is infeasible and inadvisable for Macao to pursue Vegas-style diversity. Our prediction points to the sustainable polarized growth of casino tourism in Macao. These theoretical results are confirmed in Macao as the construction of new resort properties and the upgrading of current casino assets have accentuated rather than mitigated the structural polarization of its hospitality industry. However, over-tourism along with social costs of casino gambling requires Macao to revise its urban planning substantially to quicken land reclamation, deepen regional cooperation, and strengthen horizontal diversification.