Your room is ready: Tourism and urban revival

Tourism is an essential sector of the global economy, contributing significantly to GDP and employment. Despite its importance, our understanding of its impact on urban economic activity remains limited. This paper aims to fill this gap by examining the impact of tourism on urban transformation using a dataset of hotel openings in Madrid from 2001–2010. I show that hotel openings positively impact the number of establishments and employment by using the number of protected buildings as an instrumental variable to account for the non-random distribution of hotel openings. Interestingly, hotel openings contribute to changes in the composition of the economic activities and the business structures, enhancing tourist-oriented corporate-owned businesses over other individual-owned companies. Finally, economic effects extend to the real estate market, increasing rental prices and residential investment. • Hotel openings positively affect the number of establishments and employment in surrounding areas. • Hotel-induced tourism benefits tourist-oriented establishments but negatively affects manufacturing-oriented activities. • Hotel openings lead to appreciation in the rental market and boost residential investment. • Displacement of individual-owned establishments in favor of corporate-owned businesses is observed.