Constructing a Tourism CGE Model
Based on the review of previous studies and the background information of the economy as well as the tourism industry, it is clear that tourism demand and its inter-industry linkage are very important to a tourism CGE model. This chapter demonstrates how
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Based on the review of previous studies and the background information of the economy as well as the tourism industry, it is clear that tourism demand and its inter-industry linkage are very important to a tourism CGE model. This chapter demonstrates how to incorporate tourism demand into a CGE model and how tourism demand is linked to various industries. CGE modelling was already introduced in Chap. 1. This chapter will discuss CGE models in more details, including functions and solutions, the TABLO codes, and the structure of nested functions. The derivation of mathematical functions in this chapter is for intermediate CGE modellers who wish to go deeper to test the rigour of a CGE model. For a novice CGE modeller, the mathematical derivation of functions can be ignored, but a good understanding of the solutions and TABLO codes for these functions is necessary for building a tourism CGE model. After having studied this chapter, the reader should be able to create a tourism CGE model from scratch or, alternatively, change an existing CGE model like ORANI-G to a tourism CGE model. The structure of this chapter is arranged as follows. Section 5.1 explains the ways to model tourism demand and briefly describes the general features of the model. Section 5.2 considers the production of goods © The Author(s) 2017 S. Meng, M. Siriwardana, Assessing the Economic Impact of Tourism, DOI 10.1007/978-3-319-40328-1_5
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Assessing the Economic Impact of Tourism
and services. The production function (including input demand function and output mix function) for each sector will be discussed and derived. Section 5.3 derives the investors’ demand function, while Sects. 5.4 and 5.5 discuss the households and tourist utility functions, respectively. The household utility function is characterized by a linear expenditure system (LES). In order to embody the different tourism spending patterns on shopping and non-shopping goods, the tourist utility function consists of three constant elasticity of substitution (CES) functions, a Leontief function, and a Cobb–Douglas function. Based on these utility functions, the demands of households and tourists for goods and services are derived. In Sect. 5.6, the demand functions for other final demand sectors—foreign and government sectors—are defined. Relevant macroeconomic variables are discussed in the following sections: income, direct taxes, and investment in Sect. 5.7; indirect taxes, zero pure profit condition, and price system in Sect. 5.8; external balance in Sect. 5.9; and price indices, wage indexation, and GDP price deflator in Sect. 5.10. Section 5.11 presents the market clearing equations. The last section demonstrates the complete model, which lists all equations, variables, parameters, and coefficients.
5.1
How to Incorporate Tourism into a CGE Model
The entry point of tourism in a CGE model is tourism expenditure. The data on detailed tourism expenditure on goods and services can be obtained by tourism surveys. Domestic tourism expenditure is part of household consumption,
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