Assessing the Economic Impact of Tourism

ASSESSING THE

ECONOMIC IMPACT

OF TOURISM

A Computable General

Equilibrium Modelling Approach

Samuel Meng and

Mahinda Siriwardana

Assessing the Economic Impact of Tourism

Samuel Meng • Mahinda Siriwardana

Assessing the

Economic Impact

of Tourism

A Computable General Equilibrium Modelling

Approach

Samuel Meng

University of New England

Armidale, New South Wales

Australia

Mahinda Siriwardana

University of New England

Armidale, New South Wales

Australia

ISBN 978-3-319-40327-4 ISBN 978-3-319-40328-1 (eBook)

DOI 10.1007/978-3-319-40328-1

Library of Congress Control Number: 2016956078

© The Editor(s) (if applicable) and The Author(s) 2017

This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the

whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of

illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and

transmission or information storage and retrieval, electronic adaptation, computer software, or by

similar or dissimilar methodology now known or hereafter developed.

The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication

does not imply, even in the absence of a specific statement, that such names are exempt from the relevant

protective laws and regulations and therefore free for general use.

The publisher, the authors and the editors are safe to assume that the advice and information in this

book are believed to be true and accurate at the date of publication. Neither the publisher nor the

authors or the editors give a warranty, express or implied, with respect to the material contained

herein or for any errors or omissions that may have been made.

Cover illustration: © Infografx / Alamy Stock Photo

Printed on acid-free paper

This Palgrave Macmillan imprint is published by Springer Nature

The registered company is Springer International Publishing AG

The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1 An Introduction to CGE Modelling 1

1.1 What Is a CGE Model? 1

1.2 A Brief Historical Review of CGE Modelling 3

1.2.1 Walras’ Law: The Theoretical Foundation

for CGE Modelling 3

1.2.2 Input–Output Analysis: The Predecessor

of CGE Modelling 3

1.2.3 Advent of CGE Modelling 6

1.3 Elements of a Standard CGE Model 6

1.3.1 Elements in CGE Model Structure 7

1.3.2 Elements in CGE Database 8

1.4 Types of CGE Models 9

1.4.1 Static Versus Dynamic CGE Models 9

1.4.2 Single-Country Versus Global CGE Models 11

1.4.3 Single-Region Versus Multi-Regional CGE

Models 12

1.4.4 Top-Down Versus Bottom-Up CGE Models 12

1.4.5 Multi-Household and/or Multi-Occupation

CGE Models 13

1.4.6 CGE Models by Research Area 13

v

1.5 Acceptance of CGE Modelling 13

1.6 An Evaluation of CGE Modelling 15

1.6.1 Advantages of a CGE Model Over Other

Simulation Models 15

1.6.2 Drawbacks of CGE Modelling 16

References 18

2 Useful CGE Modelling Packages 25

2.1 GEMPACK Versus GAMS 25

2.1.1 Advantages of a Linear Model 26

2.1.2 Percentage Change Linearization Approach 27

2.1.3 Multi-Step Process to Minimizing the

Linearization Errors 29

2.2 How to Use GEMPACK to Do a Simulation 30

2.2.1 Using RunGEM 31

2.2.2 Using WinGEM 32

2.2.3 Viewing Simulation Results 34

2.3 How to Use GEMPACK to Construct/Change a

Model 36

2.3.1 Creating a TAB File 36

2.3.2 Creating a HAR File 45

2.3.3 Creating a CMF File 52

2.3.4 Creating an STI File 57

References 58

3 Application of CGE Modelling to Tourism 61

3.1 Suitability of a CGE Model in Tourism Analysis 61

3.2 Assessing the Impact of Tourism Demand and Tourism

Policy 62

3.3 Assessing the Impact of Mega Events on Tourism and on

the Economy 69

3.4 Assessing the Impact of Tourism on the Environment

and Natural Resources 74

3.5 Assessing the Distributional Effect of Tourism 76

References 77

vi Contents

4 Collecting Background Information for a Tourism

CGE Model 83

4.1 Information on Economic Structure and the Role of

Tourism 83

4.1.1 General Feature of Singaporean Economy

and Its Implications 84

4.1.2 Manufacturing Sector 86

4.1.3 Trade, Hotels, and Restaurants 88

4.1.4 Financial and Business Services 89

4.1.5 Transportation and ICT Services 91

4.1.6 Linkages Among Sectors 93

4.2 Information on Tourism Resources 96

4.2.1 Favourable Geographic Position and Tropical

Environment 96

4.2.2 Colonial Historical Legacy 97

4.2.3 Sound Infrastructure and Efficient Service 99

4.3 Performance of the Tourism Sector 100

4.3.1 International Comparison 101

4.3.2 Performance over Time 102

4.3.3 Performance of the Hospitality Industry 106

4.4 Characteristics of Tourism Market 110

4.4.1 A Holiday and Business/MICE Destination 110

4.4.2 Diverse but Uneven Tourism-Generating

Markets 113

4.4.3 Gateway Tourism 116

4.4.4 Tourism Shopping and Health Tourism 119

4.5 Information on Tourism Policies 124

4.5.1 Modernist Aspiration (1965–1985) 124

4.5.2 Heritage Tourism (1986–1995) 125

4.5.3 Tourism Capital (1996–Present) 126

References 128

5 Constructing a Tourism CGE Model 131

5.1 How to Incorporate Tourism into a CGE Model 132

5.1.1 Creating a Real Tourism Industry 133

5.1.2 Creating a Shadow Tourism Industry 134

Contents vii

5.1.3 Modelling the Tourism Industry Directly from

the Demand Side 135

5.1.4 The Overview of a Tourism CGE Model 136

5.2 Production of Goods and Services 137

5.2.1 Demand for Composite Inputs 139

5.2.2 Demand for Intermediate Inputs 140

5.2.3 Demand for Primary Factors 145

5.2.4 Output Mix 147

5.3 Investors’ Demand 148

5.4 Household Utility 150

5.5 Tourism Demand 160

5.5.1 Demand for Composite Tourism Services 161

5.5.2 Demand for Tourism Shopping and

Non-Shopping Services 162

5.5.3 Tourism Shopping Expenditure Pattern 163

5.5.4 Tourism Non-Shopping Services Demand 167

5.5.5 TABLO Codes for Tourism Demand 169

5.6 Exports and Other Final Demands 177

5.6.1 Foreign Demand for Exports 177

5.6.2 Government Demand 178

5.7 The Price System 178

5.7.1 The Basic Values 179

5.7.2 The Purchasers’ Prices 181

5.8 Income, Consumption, and Investment 182

5.8.1 Household Income, Consumption,

and Budget Constraint 183

5.8.2 Government Income 184

5.8.3 Investment and Capital Accumulation 186

5.9 Imports, Exports, and Balance of Trade 188

5.10 Price Indices, Wage Indexation, and GDP Price

Deflator 189

5.11 Market Clearing Equations 194

5.12 The Complete Model 195

References 210

viii Contents

6 Preparing Database for a Tourism CGE Model 211

6.1 Data Requirements 211

6.1.1 I–O Data 212

6.1.2 Other Data 212

6.2 Data Availability and Sources 214

6.2.1 Singaporean I–O Tables 215

6.2.2 Other Sources 217

6.3 Model Accounts 219

6.3.1 Production Account 219

6.3.2 Household Account 222

6.3.3 Tourism Account 225

6.3.4 Sectoral Employment 229

6.3.5 Investment Matrices 234

6.3.6 Tax Matrices 238

6.4 Behavioural Parameters 240

6.4.1 Input Substitution Elasticities 240

6.4.2 Products Transformation and Export Demand

Elasticities 242

6.4.3 Tourism Demand and Tourism Substitution

Elasticities 243

6.4.4 Frisch Parameter and Household Expenditure

Elasticities 244

References 246

7 Model Implementation and Testing 249

7.1 The Integrity of Model Implementation 249

7.1.1 The Accuracy and Consistency of Data 250

7.1.2 The Rigorous Simulation Procedure in

GEMPACK 251

7.1.3 Model Validity Tests 253

7.2 Simulation Design 255

7.2.1 Economic Environment for Simulation 255

7.2.2 Simulation Plans 257

7.3 Sensitivity Tests 262

7.3.1 Testing Tourism and Export Demand Elasticities 262

Contents ix

7.3.2 Testing Wage Indexation and Product

Transformation Elasticities 266

7.3.3 Testing Substitution Elasticities 266

7.3.4 Systematic Sensitivity Analysis 269

References 271

8 Interpretation of Results from a Tourism CGE Model 273

8.1 The Impact of Disaggregated Tourism Demand 273

8.1.1 The Macroeconomic Effects 274

8.1.2 The Sectoral Effects 284

8.1.3 Employment Effects 291

8.2 The Impact of Negative Mega Events and Policy

Responses 295

8.2.1 The Macroeconomic Effects 295

8.2.2 The Tourism Effects 305

8.2.3 The Sectoral Effects 311

8.2.4 The Employment Effects 315

8.3 The Effectiveness of Singaporean Tourism Policies 331

8.3.1 The Macroeconomic Effects 332

8.3.2 The Tourism Effects 336

8.3.3 The Sectoral Effects 337

8.3.4 The Employment Effects 340

References 341

9 Frontiers of Tourism CGE Modelling 343

9.1 Modelling Tourism in a Richer Environment 343

9.2 Modelling Tourism with a Multi-Regional CGE Model 344

9.3 Modelling Tourism with a Global Context 344

9.4 Modelling Tourism Using a Dynamic CGE Model 345

Index 347

x Contents

Abbreviations

AOR Average Occupancy Rate

ARR Average Room Rate

ASEAN Association of Southeast Asian Nations

BOT Balance of Trade

CD Cobb–Douglas

CES Constant Elasticity of Substitution

CET Constant Elasticity of Transformation

CGE Computable General Equilibrium

CNTA China National Tourism Administration

COE Certificate of Entitlement

CPF Central Provident Fund

CPI Consumer Price Index

CRS Constant Returns to Scale

DOS Department of Statistics

DTD Double Tax Deduction

EV Equivalent Variation

F&B Food and Beverage

FMD Foot-and-Mouth Disease

FTA Free Trade Agreement

FTE Full-Time Equivalent

GDP Gross Domestic Product

GFC Global Financial Crisis

xi

GST Goods and Service Tax

GTAP Global Trade Analysis Project

ICT Information Communication Technology

I–O Input–Output

IT Information Technology

LES Linear Expenditure System

MICE Meetings, Incentive travel, Exhibitions and Conventions

MMRF Monash Multi-Regional Forecast

MOM Ministry of Manpower

MRT Mass Rapid Transit

MTI Ministry of Trade and Industry

NCB National Computer Board

PMB Preservation of Monuments Board

RoW Rest of World

RWC Rugby World Cup

SARS Severe Acute Respiratory Syndrome

SPG South Pacific Games

STB Singapore Tourism Board

STPB Singapore Tourism Promotion Board

TDAS Tourism Development Assistance Scheme

TEV Total Expenditure of Visitors

TPF Tourism Policy and Forecasting

TR Tourism Receipts

TSA Tourism Satellite Account

UK United Kingdom

UNCTAD United Nations Conference on Trade and Development

UNWTO United Nations World Tourism Organization

USA United States of America

WTTC World Travel and Tourism Council

xii Abbreviations

List of Figures

Fig. 1.1 Market equilibrium 2

Fig. 1.2 An illustration of economic system in a CGE model 7

Fig. 1.3 Comparative static interpretation of results in ORANI-G 10

Fig. 2.1 Johansen linearization error 29

Fig. 2.2 Multi-step process to reduce linearization error 30

Fig. 2.3 The RunGEM interface 32

Fig. 2.4 The interface for TABLO implement 33

Fig. 2.5 ViewSOL interface 35

Fig. 2.6 ViewHAR interface 46

Fig. 2.7 Interface of ‘create new set’ 46

Fig. 2.8 Interface of ‘create headers’ 47

Fig. 2.9 Interface of a har file header with default value 49

Fig. 2.10 The interface of ‘create mappings’ 50

Fig. 2.11 The interface of data aggregation 52

Fig. 4.1 Visitor arrivals by visiting purpose in recent years 111

Fig. 4.2 Visitor arrivals by region in 2006 113

Fig. 4.3 Top ten visitor arrivals by country in 2006 114

Fig. 4.4 Top ten tourism-generating markets by TEV in 2006 115

Fig. 4.5 Breakdown of TEV in 2006 119

Fig. 4.6 Top ten tourism shoppers in 2006 123

Fig. 5.1 Production of goods and services 138

Fig. 5.2 Investors’ demand 148

xiii

Fig. 5.3 Household utility 151

Fig. 5.4 Tourism demand 161

Fig. 7.1 Steps in carrying out a simulation in GEMPACK 252

Fig. 7.2 Macroeconomic closure in the long run 256

Fig. 7.3 Macroeconomic closure in the short run 256

Fig. 7.4 Results of sensitivity tests for substitution elasticities 269

xiv List of Figures

List of Tables

Table 4.1 Overall economic structure of Singapore 84

Table 4.2 Sector share of total value-added, 1960–2007 85

Table 4.3 Structure of manufacturing industry 86

Table 4.4 Investment commitments in manufacturing industry 87

Table 4.5 Singapore’s top ten imports and exports in terms of value 88

Table 4.6 Structure of financial and business services industry 90

Table 4.7 Structure of transport and storage sector 92

Table 4.8 Employment linkages between sectors 94

Table 4.9 Intermediate demand in business sectors in 2000 95

Table 4.10 World top 15 city destinations 2006 101

Table 4.11 Top ten cities by number of meetings 2006 102

Table 4.12 Visitor arrivals and tourism receipts in Singapore from

1991 to 2005 104

Table 4.13 TEV and TR from 1998 to 2006 105

Table 4.14 Standard average occupancy rate (AOR) and average

room rate (ARR) 106

Table 4.15 Supply of hotels and hotel rooms at the end of

the year, 1997–2006 107

Table 4.16 Sales turnover of Cessable hotels and other F&B

establishments (S$ Million) 109

Table 4.17 Visitor arrivals by gender and age group 112

xv