August 27, 2008
The Mediterranean and Economics
I spent the last three weeks with my three-year old on Croatia’s Dalmatian coast. We had a wonderful time enjoying sea, sun, and lots of ice-cream (sladoled). The sparsely populated island where we stayed has a smattering of small grocery stores that provide the basics. The owners of these stores don’t necessarily change what they sell during summer months when the tourist population soars, but they sure do seem to change (↑) the prices. Tourists inevitably comment about that and then move onto the issue that really gets them screaming in a half-dozen languages -- the outrageously long lines. But I posit that perhaps most of the folks in flip-flops fail to appreciate that for the other nine months of the year there are only about one-third as many people in the store.
I still have some family that lives on this very island and I wonder: Would building a bigger store to accommodate tourists be likely to raise prices all year long? Probably…and what should be the store’s strategy to smooth its revenue stream and/or to ensure against a bad tourist season? U.S. retailers often try to create new shopping seasons around specific time periods such as Memorial Day or “Back-to-School” to help smooth out the seasonality of their business, but the island’s merchants can’t attract new residents or tourists from late September thru May. All they have for nine months, literally, are old fishermen coming in to buy bread and milk!
My question to you more broadly -- how important is diversification for a small economy increasingly focused on tourism? And for those international trade buffs, what would the theories of free trade have us believe about specialization and how does that jive with the idea of economic vulnerability?
By the way, I waited 15 minutes in line at the grocery store and paid 49 HRK (Croatian Kuna) for Mickey Mouse sunglasses ($1 = 4.8 Kuna). It was worth the wait. My son was happy as a lark!
Posted by Cindy at August 27, 2008 10:33 PM
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