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Anan Wattanakuljarus
AAE-875
Growth, trade and the environment in developing countries
ContentsContents1. The Overview of Thai Economy
– Thai Sectors: GDP, Labor, and Wage – Thai Core Environment Indicators– Thai Tourism Industry
2. The General Equilibrium Model– Expenditure and Revenue Function– Equilibrium Conditions– Welfare Analysis
3. The Policy Implications
The Overview of The Overview of Thai Economy:Thai Economy:
Thai SectorsThai Sectors
Percentage share of GDP at 1988 pricesPercentage share of GDP at 1988 prices
Source: Office of the National Economic and Social Development Board, Source: Office of the National Economic and Social Development Board,
Office of the Prime MinisterOffice of the Prime Minister
1996
1997
1998
1996
1997
1998
Agriculture 10.56 10.78 11.83 Manufacturing 31.32 32.15 31.94
Crops 6.30 6.57 7.15 Construction 6.38 4.76 3.24
Livestock 1.04 1.04 1.10Electricity and water
supply 2.66 2.85 3.08
Fisheries 1.60 1.56 1.85Transportation and
communication 8.61 9.15 9.23
Forestry 0.13 0.12 0.11Wholesale and retail
trade 16.04 15.62 14.85
Agricultural services 0.28 0.27 0.30Banking, insurance and
real estate 7.47 6.70 5.65
Simple agricultural processing products 1.22 1.22 1.32 Ownership of dwellings 2.70 2.93 3.41
Mining and quarrying 1.69 1.94 2.03
Public administration and defense 2.59 2.71 3.22
Services 9.98 10.42 11.53
Tourism revenue share of GDP at current Tourism revenue share of GDP at current pricesprices
Source: Office of the National Economic and Social Development Board, Source: Office of the National Economic and Social Development Board,
Office of the Prime MinisterOffice of the Prime Minister
1996 1997 1998 1999 2000 2001
GDP4,608,49
14,727,31
74,635,92
54,688,37
2 n/a n/a
Agriculture 510,400 541,864 620,182 553,335 n/a n/a
Manufacture
1,298,817
1,349,278
1,354,394
1,452,223 n/a n/a
Construction 343,873 270,012 176,202 161,473 n/a n/a
Service and Other
2,455,401
2,566,163
2,485,147
2,521,341 n/a n/a
Tourism Revenue 219,364 220,755 242,177 253,018
285,272 299,047
Percentage tourism revenue share Percentage tourism revenue share of GDP at current pricesof GDP at current prices
Source: Office of the National Economic and Social Development Board, Source: Office of the National Economic and Social Development Board,
Office of the Prime MinisterOffice of the Prime Minister
1996 1997 1998 1999
Agriculture 11.08 11.46 13.38 11.80
Manufacture 28.18 28.54 29.22 30.97
Construction 7.46 5.71 3.80 3.44
Service and Other 53.28 54.28 53.61 53.78
Tourism Revenue/GDP 4.76 4.67 5.22 5.40
Tourism Revenue/ GDP of Service
and Other 8.93 8.60 9.7410.0
4
Comparison of revenue from tourism Comparison of revenue from tourism
and other major exports: millions and other major exports: millions
bahtbaht
Source: Ministry of CommerceSource: Ministry of Commerce
1996 1997
Tourism219,36
4 Tourism220,30
3
Computers & parts 167,674 Cars & parts 220,755
Textile products 79,875 Textile products 97,136
Rubber 63,373Computers &
parts 75,838
Integrated circuits 58,539 Rubber 65,093
Precious Stones 54,273 Canned seafood 57,450
Rice 50,735 Rice 55,622
Prawns 43,404 Precious Stones 49,309
Radio, TV and parts 34,627 Prawns 47,184
Canned seafood 34,244Radio, TV and
parts 43,579
Cars & parts 15,829Integrated
circuits 32,761
Comparison of revenue from tourism Comparison of revenue from tourism
and other major exports: millions and other major exports: millions bahtbaht
Source: Ministry of CommerceSource: Ministry of Commerce
1998 1999
Tourism320,52
6 Tourism304,98
2
Integrated circuits 242,177 Rubber 253,018
Textile products 123,133Integrated
circuits 111,767
Cars & parts 93,833 Textile products 110,356
Computers & parts 86,803 Cars & parts 73,812
Canned seafood 67,952Computers &
parts 70,111
Precious Stones 58,343 Canned seafood 65,957
Prawns 58,058 Precious Stones 59,821
Rice 57,350 Prawns 48,348
Radio, TV and parts 55,407 Rice 47,233
Rubber 49,063Radio, TV and
parts 43,942
Percentage of Employed Persons Percentage of Employed Persons by Industry: 1989 – 2000by Industry: 1989 – 2000
Source : Report of the Labor Force Survey : 1989 - 2000, National Statistical Source : Report of the Labor Force Survey : 1989 - 2000, National Statistical OfficeOffice
Year
Non-Agriculture% of Non-Agriculture and Non-Manufacture
(3)+(4)+(5)+(6)+(7)Agriculture (1)
Manufacture (2)
Construction (3)
Commerce (4)
Transport (5)
Services (6)
Others (7)
1989 57 12 4 12 3 11 1 31
1990 64 10 3 10 2 10 1 26
1991 51 14 6 13 3 12 1 35
1992 51 15 7 12 3 12 1 34
1993 49 15 6 13 3 13 1 36
1994 44 16 8 14 3 14 1 40
1995 41 17 9 15 4 14 1 43
1996 40 17 10 15 3 14 1 43
1997 39 17 10 15 4 15 1 44
1998 40 17 7 16 4 16 1 44
1999 42 16 5 16 4 16 1 42
2000 40 17 6 17 3 16 1 43
Average Wages of Employed Persons Average Wages of Employed Persons by Industry for Whole Kingdom: 1989 – 2000 by Industry for Whole Kingdom: 1989 – 2000 (*)(*)
(*)(*) Relative to the base average wage for the total employed person which is 1 Relative to the base average wage for the total employed person which is 1
Source : Report of the Labor Force Survey : 1989 - 2000, National Statistical Source : Report of the Labor Force Survey : 1989 - 2000, National Statistical OfficeOffice
YearAgriculture
(1)
Non-AgricultureAverage
of Ag, Mine, Manu
(1) to (3)
Average of Non-Ag
and Non-Manu
(4) to (9)Mining
(2)Manufacture
(3)Construction
(4)
Electricitysanitary services
(5)Commerce
(6)Transport
(7)Services
(8)Other
(9)
1989 0.54 1.11 0.90 0.93 2.09 1.26 1.54 1.39 1.45 0.85 1.44
1990 0.46 0.97 0.84 0.84 2.35 1.30 1.47 1.38 1.20 0.76 1.42
1991 0.53 - 0.83 0.90 2.70 1.00 1.63 1.48 - 0.45 1.29
1992 0.52 1.00 0.91 0.83 1.85 1.33 1.63 1.41 1.29 0.81 1.39
1993 0.49 0.97 0.86 0.80 2.25 1.31 1.43 1.41 1.17 0.77 1.40
1994 0.51 0.92 0.91 0.72 2.10 1.36 1.48 1.36 1.00 0.78 1.34
1995 0.50 0.91 0.87 0.76 2.05 1.24 1.37 1.44 1.65 0.76 1.42
1996 0.51 0.78 0.92 0.75 1.85 1.32 1.33 1.40 2.68 0.74 1.56
1997 0.53 0.96 0.92 0.72 1.85 1.29 1.51 1.36 0.75 0.80 1.25
1998 0.52 0.97 0.88 0.71 2.20 1.31 1.54 1.29 1.13 0.79 1.36
1999 0.49 0.68 0.89 0.73 2.38 1.18 1.46 1.31 1.40 0.69 1.41
2000 0.47 0.99 0.87 0.72 1.98 1.34 1.68 1.30 1.14 0.78 1.36
Thai Thai Core Core
Environment Environment IndicatorsIndicators
Thai Core Environment Thai Core Environment IndicatorsIndicators
ClimateClimate Natural DisastersNatural Disasters Land and Land UseLand and Land Use ForestForest EnergyEnergy WaterWater Hazardous Waste and WasteHazardous Waste and Waste Water PollutionWater Pollution Air PollutionAir Pollution Noise PollutionNoise Pollution
Land, Land Use and ForestLand, Land Use and Forest
Source: National Statistical Office, Office of the Prime MinisterSource: National Statistical Office, Office of the Prime Minister
1997 1998 1999 2000 2001
Total land (Sq. km.)513,11
5513,11
5513,11
5513,11
5 513,115
Forest land (%) 26.0 25.3 25.3 25.3 33.5
Area of agricultural holding (%) - 34.8 - - -
Others (%) - 39.9 - - -
Forest land (Sq. km.) 131,485 129,722 129,722 129,722 172,050
Percentage of protected area per total land (%) 15.3 15.8 16.9 17.8 -
Proportion of wood production per domestic wood-apparent (%) 2.6 4.7 3.4 3.1 -
WaterWater
Source: National Statistical Office, Office of the Prime MinisterSource: National Statistical Office, Office of the Prime Minister
1997 1998 1999 2000 2001
Percentage of effective storage capacity per active storage (%) 74.5 61.7 31.5 73.4 81.2
Percentage of raw water use to pipe of water per total (%)
- From surface water (%) 79.0 79.7 79.7 … …
- From subsurface water (%) 7.6 7.0 6.5 … …
Average pipe water consumption (Cu. m/Case/Month)
- The Metropolitan Waterworks Authority 58.8 55.4 51.6 52.2 53.9
- The Provincial Waterworks Authority 25.8 23.8 21.8 21.8 22.6
Hazardous Waste and WasteHazardous Waste and Waste
Source: National Statistical Office, Office of the Prime MinisterSource: National Statistical Office, Office of the Prime Minister
1997 1998 1999 2000 2001
Total waste (1,000 Tons)13,542.
213,594.
813,825.
813,932.
1 …
In Bangkok (%) 24.1 22.8 23.7 23.9 …
Municipality and Mueang Pattaya (%) 35.1 32.7 32.6 30.9 …
Non - municipality (%) 40.8 44.5 43.7 45.2 …
Total hazardous waste (1,000 Tons) 1,718 1,637 1,600 1,650 1,650
Industrial hazardous waste (%) 81.5 79.7 78.1 78.2 77.6
Domestic hazardous waste (%) 18.5 20.3 21.9 21.8 22.4
Water PollutionWater Pollution
Standard ValueStandard Value
DO = Dissolved Oxygen > 2.0 mg./l.DO = Dissolved Oxygen > 2.0 mg./l.
BOD = Biochemical Oxygen Demand < 4.0 mg./l.BOD = Biochemical Oxygen Demand < 4.0 mg./l.
TCB = Total Coliform Bacteria < 20,000 MPN/100 ml.TCB = Total Coliform Bacteria < 20,000 MPN/100 ml.
Source: National Statistical Office, Office of the Prime MinisterSource: National Statistical Office, Office of the Prime Minister
1997 1998 1999 2000
Chaophraya River (Lower)
DO (mg./l.) 0.5 1.0 1.8 2.0
BOD (mg./l.) 3.1 2.8 3.3 2.6
TCB (MPN/100ml.)
46,000
14,500
44,156 63,000
Thachin River (Lower)
DO (mg./l.) 1.0 1.3 1.0 1.0
BOD (mg./l.) - 2.0 4.1 4.0
TCB (MPN/100ml.)
24,000 2,400
97,846
100,000
Mae Klong River
DO (mg./l.) 6.0 8.0 6.1 6.2
BOD (mg./l.) 1.3 1.0 1.0 1.1
TCB (MPN/100ml.) 3,200 790 3,838 3,900
Bang Pakong River
DO (mg./l.) 4.3 4.7 4.8 3.9
BOD (mg./l.) 0.9 0.9 1.6 1.7
TCB (MPN/100ml.) 500 195 8,945 6,200
1997 1998 1999 2000
Air PollutionAir Pollution
Source: National Statistical Office, Office of the Prime MinisterSource: National Statistical Office, Office of the Prime Minister
1997 1998 1999 2000
Emissions per GDP at 1988 prices (Gram/Baht)
Carbon Dioxide (CO2) 51.5 52.3 51.6 49.1
Nitrogen Oxide (NOx) 0.2 0.2 0.2 0.2
Sulfur Dioxide (SO2) 0.5 0.3 0.3 0.2
Air quality on road side in Bangkok (Average)
Total Suspended Particulate Matter
(24 hrs.) (mg./cu. m) - - 0.2 0.2
Suspended Particulate Matter PM-10
(24 hrs.) (microgram/cu. m) - - 80.1 82.6
Carbon monoxide(8 hrs.) (ppm.) - - 2.3 2.2
Ozone (1 hr.) (ppb) - - 6.9 7.6
Sulfur dioxide (24 hrs.) (ppb) - - 8.2 9.2
Thai Thai Tourism Tourism IndustryIndustry
Statistics of Tourism in Thailand Statistics of Tourism in Thailand
Number of Tourists 1996-2002Number of Tourists 1996-2002
Note: Number of tourism excluding overseas Thai. Note: Number of tourism excluding overseas Thai.
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Fig-1: Number of Tourists
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Per
son
Purpose of Visit Thailand (%)Purpose of Visit Thailand (%)1996-20021996-2002
Note: Number of tourism excluding overseas Thai. Note: Number of tourism excluding overseas Thai.
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Year
Purpose of Visit (percent, %)
Vacation Business Convention Others
1996
87
10
1
2
1997
87
10
1
2
1998
88
9
1
2
1999
88
9
1
2
2000
88
9
1
2
2001
88
9
1
2
2002
89
8
1
2
Reasons of Visit Thailand Reasons of Visit Thailand in Low Season 2001 (%)in Low Season 2001 (%)
Note: Tourists answer in order and no more than three reasonsNote: Tourists answer in order and no more than three reasons
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Reasons to Visit ThailandPercentage
(%)
Cheap and Worth for Money 42.46
Tradition, Art, and Culture 41.32
Shopping 39.46
Beach, Sea, and Island 32.87
Thai Foods 20.14
Accommodation, Good Service
13.72
Nature, and Mountain 10.22
As of Packaged Tour 9.25
Safety 8.69
Sports 2.55
Other 21.15
Occupation of Tourists (%) Occupation of Tourists (%) 1996-20021996-2002
Note: Number of tourism excluding overseas Thai. Note: Number of tourism excluding overseas Thai.
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Year
Occupation (percent, %)
Professionals Administrative
managerial Commercial personnel
Laborers, production
Other and not stated
1996 17 12 18
18 36
1997 19 13 17
15 37
1998 22 11 17
15 35
1999 19 11 17
18 35
2000 15 11
17
20 37
2001 15 11
17
19 39
2002 15 11
17
17 40
Tourist Consumption Expenditure Tourist Consumption Expenditure
1996-20021996-2002
Note: Number of tourism excluding overseas Thai. Note: Number of tourism excluding overseas Thai.
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Fig-2: Tourist consumption expenditure
219,364 220,754
242,177
253,018
200,000
210,000
220,000
230,000
240,000
250,000
260,000
1 2 3 4
Year (1=1996, 4=1999)
Mil
lio
n B
ah
t
Percentage Share of Percentage Share of Tourist Expenditure 1996-2002Tourist Expenditure 1996-2002
Note: Number of tourism excluding overseas Thai. Note: Number of tourism excluding overseas Thai.
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Expenditure 1996 1997 1998 1999
Accommodation 20 25 27 24
Food and beverage 15 15 16 15
Sightseeing 6 6 4 4
Local transport 6 7 7 7
Shopping 38 34 29 35
Entertainment 10 10 11 11
Miscellaneous 5 3 5 4
Average Days of Stay in Thailand Average Days of Stay in Thailand
1996-20021996-2002
Note: Number of tourism excluding overseas Thai. Note: Number of tourism excluding overseas Thai.
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Year Average days of
stay
1996 8.23
1997 8.33
1998 8.4
1999 7.96
2000 7.77
2001 7.96
2002 7.98
Quantity of Accommodations Quantity of Accommodations 1997-2001 1997-2001
Accommodations: Hotel, Guest House, Bangalore, Resort, Raft, Accommodations: Hotel, Guest House, Bangalore, Resort, Raft, Apartment, MotelApartment, Motel
Source: The Tourism Authority of ThailandSource: The Tourism Authority of Thailand
Quantity of Accommodations
4762 44544837
5525 5701
0
1000
2000
3000
4000
5000
6000
1 2 3 4 5
Year, 1= 1997, 5 = 2001
Quan
tity
What does What does tourism promotion tourism promotion
mean for mean for welfare and welfare and
environment?environment?
General General
Equilibrium Equilibrium ModelModel
The General Equilibrium Model
NATURE
PARK
LAND
RURAL TOURISM
AGRICULTURE
LABOR
URBAN TOURISM
MANUFACTURING
CAPITAL
RURAL AREA URBAN AREA
POLLUTION
EXPORT OR IMPORT
Summary of NotationSummary of Notation
rr Rural tourism Rural tourism ss Urban tourismUrban tourismaa Agriculture Agriculture mm ManufactureManufacture
xxii Domestic demand Domestic demand for good ifor good i
yyii Domestic supply Domestic supply of good i of good i
ppii Price of good i Price of good i LL Labor endowmentLabor endowmentKK Capital endowmentCapital endowment
ll Land endowment, l =1Land endowment, l =1TT Land used in Land used in
agricultureagriculturenn Natural Park, (n+T=1)Natural Park, (n+T=1)uu Aggregate utility level Aggregate utility level zz Pollution emitted Pollution emitted
from from manufacturing manufacturing tt Pollution taxPollution taxtt TariffTariff
MMii Net import of tradable Net import of tradable good igood i
Summary of FunctionsSummary of Functions
Aggregate Expenditure FunctionAggregate Expenditure Function
Total Revenue FunctionTotal Revenue Function
),,,,,,( uznppppE masr
}|{min uxpxpxpxp mmaassrrx
),,,,,,,( KLnppppG masr },|.{max KLzypypypyp mmaassrr
y
Aggregate Aggregate Expenditure Expenditure
FunctionFunction
Aggregate Expenditure Function Aggregate Expenditure Function (1)(1)
Homogenous of degree one in all Homogenous of degree one in all pricesprices
Concave in prices Concave in prices
Non-decreasing in prices, utility, Non-decreasing in prices, utility, pollution emission, and natural park pollution emission, and natural park
),,,(),,,( uznpEuznpE
0,0 iii ppp EE
0,,, nzup EEEEi
Aggregate Expenditure Aggregate Expenditure Function (2)Function (2)
Shephard’s lemma, the demand for good i Shephard’s lemma, the demand for good i
Output demand is downward sloping Output demand is downward sloping
The shadow price of clean environment, or The shadow price of clean environment, or the marginal willingness for consumer to the marginal willingness for consumer to pay to for clean environmentpay to for clean environment
0 ip xEi
0 iipp pxEii
0zE
Aggregate Expenditure Aggregate Expenditure Function (3)Function (3)
The shadow price of natural park, The shadow price of natural park, or the marginal willingness for or the marginal willingness for consumer to pay to preserve consumer to pay to preserve natural park:natural park:
Utility functionUtility function
0nE
),,( znxuu
0,0,0 znx uuu
Total Total Revenue Revenue FunctionFunction
Total Revenue Function (1)Total Revenue Function (1)
Homogenous of degree one in all Homogenous of degree one in all prices prices
Homogenous of degree one in all Homogenous of degree one in all factor endowments factor endowments
),,,,(),,,,( KLnpGKLnpG
),,,,(),,,,( KLnpGKLnpG
Total Revenue Function (2)Total Revenue Function (2)
Convex in pricesConvex in prices
Concave in factor endowments Concave in factor endowments
The supply of good iThe supply of good i
0,0 iii ppp GG
KLlvGG vvv ,,,0,0
0 ip yGi
Total Revenue Function (3)Total Revenue Function (3)
Output supply is upward sloping Output supply is upward sloping
The quantity of pollution emitted The quantity of pollution emitted
0 iipp pyGii
0 Gz
0 Gz
Total Revenue Function (4)Total Revenue Function (4)
The wage of factor The wage of factor
Factor demand is downward sloping Factor demand is downward sloping
0 vwvG
0 vwG vvv
KLlv ,,
EquilibriuEquilibrium m ConditionsConditions
Equilibrium Conditions (1)Equilibrium Conditions (1)
The economy’s budget constraintThe economy’s budget constraint
total expenditure = total revenue total expenditure = total revenue
[1][1]
),,,,,,( uznppppE masr
),,,,,,,( KLnppppG masr z. i
iiMt
Equilibrium Conditions (2)Equilibrium Conditions (2)
Net import of tradable goods Net import of tradable goods [2] to [5][2] to [5]
Good is imported if Good is imported if
Good is exported if Good is exported if
masri ,,,ii ppi GEM
,0iM
,0iM
0t
0t
Equilibrium Conditions (3)Equilibrium Conditions (3) PollutionPollution
[6][6]
Land marketLand market[7][7]
Inverse world demand for rural Inverse world demand for rural tourism tourism
[8][8]
Inverse world demand for urban Inverse world demand for urban tourism tourism
[9][9]
zG
1Tn
),),(,( znMpMpp ssrrr
),,),(( znMMppp srrss
Welfare Welfare AnalysisAnalysis
Welfare Analysis (1)Welfare Analysis (1)
Exogenous variables Exogenous variables
are given at world market prices are given at world market prices
Endogenous variables Endogenous variables
are set by world demand for rural are set by world demand for rural and and
urban tourism urban tourism
ma ppKL ,,,
masrsr MMMMunpp ,,,,,,,,
ma pp ,
sr pp ,
Welfare Analysis (2)Welfare Analysis (2)
Total differentiate [1], yieldTotal differentiate [1], yield
Rearrange and using [2] to [6], yieldRearrange and using [2] to [6], yield
[10][10]
duEdzEdnGEdpMdpM uznnssrr )()(
duEdzEdnEdpEdpE uznsprp sr
i
iii
iinsprp dtMdMtzddzdGdnGdpGdpGsr
i
iii
ii dtMdMt
Welfare Analysis (3)Welfare Analysis (3) Total differentiate [8], and rearrange, yieldTotal differentiate [8], and rearrange, yield
[11][11]
[11’][11’]
dzdz
dpdn
dn
dpdM
dM
dp
dp
dpdM
dM
dpdp rr
ss
s
s
rr
r
rr
rr
r
r
r
r
rr p
M
dM
p
M
dM
dpdp r
s
s
r
s
s
r pM
dM
p
M
dM
dp
rr
r pn
dn
p
n
dn
dpr
r
r pz
dz
p
z
dz
dp
zpnpMpMpdp rrrrsrsrrrrr ˆˆˆˆ
znMMp rrssrrrr ˆˆˆˆˆ
Welfare Analysis (4)Welfare Analysis (4) Similarly, total differentiate [9], yield Similarly, total differentiate [9], yield
[12][12]
[12’][12’]
Where, for Where, for Proportional change of tourism pricesProportional change of tourism prices
Proportional change of tourism importProportional change of tourism import
zpnpMpMpdp sssssssrsrss ˆˆˆˆ
znMMp ssssrrss ˆˆˆˆˆ
iii pdpp ˆ
iii MdMM ˆ
sri ,
Welfare Analysis (5)Welfare Analysis (5)
Own inverse elasticity of world Own inverse elasticity of world demand demand for tourism for tourism
Cross inverse elasticity of world Cross inverse elasticity of world demand for tourism demand for tourism
Inverse elasticity of Natural Inverse elasticity of Natural Park to Park to tourism prices tourism prices
Inverse elasticity of pollution to Inverse elasticity of pollution to tourism prices tourism prices
j
i
i
jij p
M
dM
dp
i
ii p
n
dn
dp
i
ii p
z
dz
dp
srji ,, ji
i
i
i
ii p
M
dM
dp
Welfare Analysis (6)Welfare Analysis (6)
Substitute [11] and [12] in [10] and rearrange, yieldSubstitute [11] and [12] in [10] and rearrange, yield
[13][13]
uuEu ˆ rssrsrrrrr MMpMpMt ˆ)(
aaa MMt ˆ mmm MMt ˆ
nppnEnG ssrrnn ˆ)(
i
iii tMt ˆ
ssssrrsrss MMpMpMt ˆ)(
zppzEz zzrrz ˆ).(
Policy Policy Implications Implications
Tourism Promotion PolicyTourism Promotion Policy
Tourism Promotion Policy (1)Tourism Promotion Policy (1) I would like to analyze the effects of I would like to analyze the effects of ““tourism tourism
promotion policy”promotion policy” on the social welfare. on the social welfare. The tourism promotion policy indicates the increases The tourism promotion policy indicates the increases
in rural tourism export and/or urban tourism export, in rural tourism export and/or urban tourism export, i.e. i.e.
For simplicity and isolation of the problem, I assume For simplicity and isolation of the problem, I assume that there are no tariffs, i.e. free trade policy in all that there are no tariffs, i.e. free trade policy in all sectors. sectors.
Therefore, the welfare effects equation is reduced to Therefore, the welfare effects equation is reduced to [13A] below:[13A] below:
0ˆ,ˆ sr MM
0it masri ,,,
Tourism Promotion Policy (2)Tourism Promotion Policy (2)
[13A][13A]
ssssrrsr MMpMp ˆ)(
uuEu ˆ rssrsrrr MMpMp ˆ)(
nppnEnG ssrrnn ˆ)(
zppzEz zzrrz ˆ).(
The Sign (1)The Sign (1) If both rural and urban tourism are normal goods with If both rural and urban tourism are normal goods with
inelastic demand, theninelastic demand, then
If both rural and urban tourism are normal goods with If both rural and urban tourism are normal goods with elastic demand, thenelastic demand, then
If rural and urban tourism are substitutes, thenIf rural and urban tourism are substitutes, then
If rural and urban tourism are complements, thenIf rural and urban tourism are complements, then
1,0 sr
1, sr
0, srrs
0, srrs
The Sign (2)The Sign (2) As mentioned before, this is the shadow price of As mentioned before, this is the shadow price of
clean environment (the marginal willingness for clean environment (the marginal willingness for consumer to pay for clean environment)consumer to pay for clean environment)
As mentioned before, this is the shadow price of As mentioned before, this is the shadow price of
natural park (the marginal willingness for natural park (the marginal willingness for consumer to pay to preserve natural park)consumer to pay to preserve natural park)
0zE
0nE
The Sign (3)The Sign (3)
Natural park has a positive externality on rural tourism. If Natural park has a positive externality on rural tourism. If natural park demand is stronger than natural park supply, natural park demand is stronger than natural park supply, then an increase in prices of rural tourism decreases then an increase in prices of rural tourism decreases natural natural park. park.
In addition, if rural and urban tourism are substitutes, then In addition, if rural and urban tourism are substitutes, then
if rural and urban tourism are complements, thenif rural and urban tourism are complements, then
if rural and urban tourism are complements, then if rural and urban tourism are complements, then
0r
0s
0s
The Sign (4)The Sign (4)
If natural park supply is stronger than natural park demand, If natural park supply is stronger than natural park demand, then an increase in prices of rural tourism increases natural then an increase in prices of rural tourism increases natural
parkpark
In addition, if rural and urban tourism are substitutes, then In addition, if rural and urban tourism are substitutes, then
if rural and urban tourism are complements, thenif rural and urban tourism are complements, then
if rural and urban tourism are complements, then if rural and urban tourism are complements, then
0r
0s
0s
The Sign (5)The Sign (5) Pollution has a negative externality on urban tourism. If Pollution has a negative externality on urban tourism. If
urban tourism demand is stronger than urban tourism urban tourism demand is stronger than urban tourism supply, then an increase in pollution decreases urban supply, then an increase in pollution decreases urban
tourism demand, and so decreases prices of urban tourism.tourism demand, and so decreases prices of urban tourism.
In addition, if rural and urban tourism are substitutes, then In addition, if rural and urban tourism are substitutes, then
if rural and urban tourism are complements, thenif rural and urban tourism are complements, then
if rural and urban tourism are complements, then if rural and urban tourism are complements, then
0s
0r
0r
Example of Example of Policy ImplicationPolicy Implication
Example of Policy Implication (1)Example of Policy Implication (1)
Example 1:Example 1: Fixed agricultural land and natural park policy: Fixed agricultural land and natural park policy: Fixed pollution emission policy: Fixed pollution emission policy: Rural and urban tourism promotion: Rural and urban tourism promotion:
Then:Then:
If rural and urban are complements, then there is a welfare If rural and urban are complements, then there is a welfare improvement. improvement.
If rural and urban are substitutes, then welfare effects are If rural and urban are substitutes, then welfare effects are ambiguous.ambiguous.
nnTT ,zz
uuEu ˆ
,0, sr MM 0ˆ,ˆ sr MM
ssssrrsrrssrsrrr MMpMpMMpMp ˆ)(ˆ)(
Example of Policy Implication (2)Example of Policy Implication (2)Example 2:Example 2: Rural and urban tourism promotion: Rural and urban tourism promotion:
Then:Then:
If rural and urban are complements, and there is a perfect If rural and urban are complements, and there is a perfect property right or tax system on both natural park and property right or tax system on both natural park and pollution so that:pollution so that:
So there is a welfare improvement. And the optimal shadow So there is a welfare improvement. And the optimal shadow price of natural park, and the optimal pollution tax are:price of natural park, and the optimal pollution tax are:
uuEu ˆ
,0, sr MM 0ˆ,ˆ sr MM
ssssrrsrrssrsrrr MMpMpMMpMp ˆ)(ˆ)( zppzEznppnEnG zzrrzssrrnn ˆ).(ˆ)(
0 ssrrnn ppnEnG 0. zzrrz ppzEz
n
ppnGE ssrrnn
z
ppzE ssrrz
Example of Policy Implication (Example of Policy Implication (33))Example 3:Example 3: Fixed pollution emission policy: Fixed pollution emission policy: Rural and urban tourism promotion: Rural and urban tourism promotion: Increase natural park:Increase natural park:
Then:Then:
If rural and urban are complements, then an increase in If rural and urban are complements, then an increase in natural park ambiguously improve welfare if natural park ambiguously improve welfare if
Note: If people do not care about natural park, , then Note: If people do not care about natural park, , then an increase in natural park ambiguously improve welfare if an increase in natural park ambiguously improve welfare if
zz
uuEu ˆ
,0, sr MM 0ˆ,ˆ sr MM
ssssrrsrrssrsrrr MMpMpMMpMp ˆ)(ˆ)(
0ˆ n
nppnEnG ssrrnn ˆ)(
ssrrnn ppnGnE
0nE
0, sr
Example of Policy Implication (4)Example of Policy Implication (4)Example 4:Example 4: Fixed agricultural land and natural park policy: Fixed agricultural land and natural park policy: Rural and urban tourism promotion: Rural and urban tourism promotion: Decrease pollution:Decrease pollution:Then:Then:
If rural and urban are complements, then a decrease If rural and urban are complements, then a decrease in pollution ambiguously improve welfare if in pollution ambiguously improve welfare if
uuEu ˆ
,0, sr MM 0ˆ,ˆ sr MM
ssssrrsrrssrsrrr MMpMpMMpMp ˆ)(ˆ)(
0ˆ z
nnTT ,
zppzEz zzrrz ˆ).(
zzrrz ppzzE .
Other ResultsOther Results There are many other implication results which There are many other implication results which
could be drawn from the welfare equation [13]. could be drawn from the welfare equation [13]. These results are left for further exercises.These results are left for further exercises.
Further research is also needed in order to Further research is also needed in order to determine the own price and cross price determine the own price and cross price elasticities as well as other elasticities for the elasticities as well as other elasticities for the amenity such as natural park and pollution.amenity such as natural park and pollution.
Thank You For Thank You For Your AttentionYour Attention