javier lozano 1 growth, tourism and the environment javier lozano universitat de les illes balears...

1Javier LozanoJavier Lozano

Growth, Tourism and the EnvironmentGrowth, Tourism and the Environment

Javier Lozano

Universitat de les Illes Balears

PhD in Tourism and Environmental Economics

University of the Balearic Islands


Outline of the course

• Economic growth: 6-8h• Economic growth and the environment: 10-12h• Economic growth, tourism and the environment: 10-12h


Economic growth: preliminaries

• Study of the determinats of per capita income (y)– What determines y growth?

• Explain “modern” economic growth• Explain economic growth differences between

countries• Explain economic growth acceleration and

slowdown• Explore economic growth policies

– What determines differences in y?• Explain world income inequality



• Why per capita income?– Good indicator of material well-being…– …but not perfect

• Income distribution within the country

• Non-marketed goods and services

• Other welfare determinants

– Human Development Index (United Nations Development Programme) http://hdr.undp.org



• Per capita income determinants:

hoursWorking

Y

forceLabour

hoursWorking

popActive

forceLabour

popageWorking

popActive

L

popageWorking

L

Yy

•Economic growth theory is mainly focused on labour productivity. Reasons:

•“Modern” economic growth mainly due to labour productivity growth

•Big p.c. income differences mainly due to labour productivity differences


Economic growth: Solow-Swan (neoclassical) model

• Neoclassical production function:– Y=(K,L,A)– Constant returns to scale– Decreasing returns to K and L

• Cobb-Douglas: Y=K (AL)1- y=A1-k

• gy=gk+(1- )gA

Solow residual

Romer Ch 1, S-i-M Ch 1; Barro & S-i-M. Ch 1; Easterly Ch 3



kgnksk

knksAk

KALsKK

ˆ)(ˆˆ

)(

)(

1

1


• The economy converges to a balanced growth path

• On the balanced growth path economic growth is solely determined by the rate of technological progress (growth only driven by “mechanization” peters out due to diminishing returns to capital)

• Changes in saving rate or in the population growth rate have temporary effects on economic growth but permanent effects on the income level



• On the balanced growth path we observe:– Constant per capita growth– Constant K/Y– Increasing capital per worker– Constant returns to capital– Increasing real wage

• These are stilized facts of major industrialized countries (Kaldor’s stilized facts)



• Variations in capital per worker cannot account for a significant part of either log term growth or cross-country income differences. If income differences were mainly due to “mechanization” differences then: (See Romer 1.6, Easterly Ch. 3)

– To account for income variation differences in k should be much higher than observed

– We should observe much higher differences in the returns to capital

– Moreover, growth accounting and level accounting show a large contribution of the Solow residual in explaining per capita income variation.




• So knowing about A is fundamental for understanding y variations…but, what is A?

A

Missing capital

Human capital Public infrastructure

Efficiency (total factor productivity)

Technology (knowledge)

Social infrastructure

Mismeasurement of capital contribution to production (externalities from capital)

Geography, culture, believes…


Ex cursus: endogenous saving

• S-S model not useful for addressing normative issues (no welfare measure)

• Moreover, there are not explicit agents that take decissions about resource allocation.

• We now consider the existence of households that decide how to allocate their income between current consumption and saving (future consumption).

Romer Ch 2A; S-i-M. Ch 3; Barro & S-i-M. Ch 2


Economic growth: out of the neoclassical world

A

Missing capital

Human capital Public infrastructure


Technology (knowledge) Social

infrastructure





• Learning by doing and spillovers model

Y=K (AL)1-

A=BK, 0< ≤1

Y=B1-K+(1-) L1-

Considering =1

kkLBk

11endogenous growth

scale effects

Mismeasurement of capital contribution to production (externalities from capital)Romer pp. 120-125; S-i-M. Ch 2.2 and 7; Barro & S-i-M Ch 4.3



A

Missing capital

Human capital Public capital



infrastructure





• Public capital

Y=K (AL)1-G

G=YY=K (AL)1-G(K)

If =1- ->Endogenous growth

Public capitalS-i-M. Ch 2.3 and 6 ; Barro & S-i-M Ch 4.4



A

Missing capital




infrastructure





• Y=K(AH)1-

H=hL

h=f(education, health)

• Failure of education to stimulate growth in developing contries (Easterly Ch 4)

• Role of differences in human capital to explain differences in pc income: Hall & Jones (1999): differences years of schooling explain less than 25% of differences in y between five richest and five poorest. Differences in capital intensity explain arround 16%. The rest is an unexplained residual

Human capitalRomer, pp. 133-143; Easterly Ch. 4



A

Missing capital




infrastructure




Economic growth: out of the neoclassical worldTechnology

ALaKaBA

LaAKaY

LK

LK

111

ALaBA

LaAY

L

L

1

Romer Ch 3; Easterly Ch. 5, 9



<1 gy*=n/(1-)

>1 increasing gy

=1 positive growth with n=0

Technology



• Properties of technology (knowledge)– Nonrival: the use of a piece of knowledge does

not make its use by someone else more difficult– Excludability: different degrees depending of

which knowledge• Certain degree of excludability is necessary for

private incentives for knowledge creation

• Excludability is good ex ante but bad ex post.

Technology


Economic growth: out of the neoclassical worldTechnology

• Externalities from R&D implies that market allocation of resources to R&D is not optimal:– Consumer-surplus effect (positive)– Business-stealing effect (negative)– R&D effect (positive)



A

Missing capital




infrastructure




• Social infrastructure (Hall & Jones 1999): institutions and policies that affect two kind of decissions:– Investment (in private or public physical capital or

in human capital) vs consumption– Production (activities that increase total output) vs

diversion (activities that realocate that output)

Social infrastructureRomer Ch 3.10; Easterly Ch. 11, 12, 13



• Social infrastructure: examples:– Policy: very high inflation; exchange rate

controls; predatory taxation; missalocation of public revenues; high regulatory burden; low control on monopolies; corruption; protectionist policy

– Institutions: enforcement of contracts; rule of law; constraint on executive powers

– Socioeconomic and ethnic fragmentation and polarization

Social infrastructureRomer Ch 3; Easterly Ch. 11, 12, 13


Year Population P.c. income (in $2000)

-5.000 5 130

1.000 50 160

1 170 135

1.000 265 165

1.500 425 175

1.800 900 (17900%) 250 (92%)

1.900 1625 850

1.950 2.515 2.030

1.975 4.080 4.640

2.000 6.120 8.175 (3170%)


Economic growth and the environment



• “The prospects for sustained economic growth are, therefore, better than at any previous time in human history” (Beckerman, 1999)

• “Once ‘economic’ growth increases ecological costs faster than production benefits, it becomes in true uneconomic growth and its measure becomes a gilded index of far-reaching ruin” (Daly, 1999)



• Van der Bergh and de Mooij (1999): five perspectives on growth and the environment:

1. The inmaterialist (moralist): growth is undesirable• Antropothentric: Growth goes with many costs

(environmental, social, etc.) that outweight benefits (see Newmayer, 1999 Ch 5.1.6. about ISEW)

• Non-antropothentric: growth harms natural assets with intrinsic values

2. The pessimist: growth is impossible in the long run due to irreversible depletion and destruction of natural and environmental resources (Daly, 1974, 1999; Georgescu-Roegen, 1971; Goodland, 1999; Meadows et alt (1972, 1992); some of the environmental growth models)

• Main arguments are based on the thermodynamics laws



• Thermodynamics laws (Daly, 1999; Smulders, 1995b; Ayres, 1997, 1999; Georgescu-Roegen, 1971):– First law of thermodynamics: conservation of mass and

energy. You cannot create mass/energy from nothing– Second law of thermodynamics (entropy law): physical

trnasformation and rearrangement converts low-entropy (“useful”) matter/energy into high-entropy (“unuseful”, unavailable, dissipated, “waste”) matter/energy. This process cannot be 100% reverted (through recycling) and, moreover, to do so requires more energy. We cannot use the same amount of energy or material over and over again, because use or transformation is an entropic process. Reassembling the dispersed material requires additional energy.



• Thermodynamics laws: implications– In a closed system (in physical terms): decline

and death– In an open system (Earth is an open system that

receives a constant flux of low-entropy energy from the sun): economic growth accelerates entropy to the point that energy from the sun is not enough to compensate for the loss of useful matter/energy.



3. The technocrat: growth and environmental quality are (in principle) compatible (Smulders, 1995b; Beckerman, 1999; Dasgupta & Heal, 1974; Lomborg, 2001; Neumayer, 1999; Nordhaus et alt. 1992; Solow, 1974; Romer 1.8)

• True output of economic processes is not physical outflow (throughput) but value. No theoretical limit to the amount of matter/energy needed for providing a given service.

• Ways to relax physical constraints to growth: substitution and technical progress

• Main problem are incentives: distinguish between resources for which property rights are defined or are not.

4. The opportunist (carpe diem): growth and env. degradation are inevitable

• Even if it is possible to reconcile growth and environmental preservation, mankind will be unable to turn economic development in a way that is sustainable



5. The optimist: growth is necessary for environmental preservation (see Kuznets curve literature)

• Higher income level implies higher demand for environmental quality (environmental quality is a luxury good with income elasticity higher than one): higher demand for environmental friendly goods and for environmental regulation

• Economic growth alows to devote resources to resource saving technological change and to adequate public infrastructures (like sanitation facilities)


Sustainability: definitions• Pezzey (1989) includes over 60 different definitions of

sustainability:– “Sustainable utilization is a simple idea: we should utilize species and

ecosystems at levels and in a way that allow them to go on renewing themselves for all practical purposes indefinitely”

– “Sustainable development is that development that is likely to achieve lasting satisfaction of human needs and improvement of quality of human life”

– “...the broadest sense of global sustainability includes the persistence of all components of the biosfere, even those with no apparent benefit to humanity”

– “We sumarise the necessary conditions (for sustainable development) as constancy of the natural capital stock”

– “The sustainability criterion suggests that, at a minimum, future generations should be left no worse off than current generations”

– “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Report, 1987)


Sustainability: definitions

• Elusive concept

• Brundtland report. Sustainability is about:– Intragenerational equity– Intergenerational equity

• Most of the references focus only on intergenerational equity


Sustainability: definitions

• Preferred definitions for our approach:– “Development is defined to be sustainable if it

does not decrease the capacity to provide non-declining per capita utility for infinity” (Newmayer, 1999)

– “Sustainable development implies non-declining welfare for the representative consumer” (Pezzey, 1989)


Sustainability and intertemporal decision criteria

• Sustainability is an incomplete social decision rule

• Other intertemporal decision rules might not be compatible with sustainability.

1. Rawlsian’s maximin criterion (Solow, 1974):

– It implies constant consumption

welfaresgenerationpaths

minmax



2. Discounted utilitarianism

– It has the desirable property of dynamic efficiency (Pareto optimality)

– For certain situations it implies the choice of usustainable paths (declining utility) even if sustainable paths are feasible (for instance, Dasgupta & Heal, 1974, Newmayer, 1999 appendix 1)

dttUe t

0max



• Discounted utilitarianism (cont.)– Environmental growth models add

sustainability constraints to standard discounted utilitarism (either directly or considering the role of the environment and natural resources in production and utility)

3. Other possible criteria: Heal (1998). Valuing the future.


• Typical structure of env. growth models


givenRNK

RS

PNEN

PNRKFY

KCYK

NPCUeMax t

000

0

,,

)(

),,,(

,,


Weak and strong sustainability (Neumayer 1999)

• How can we guarantee the capacity to provide non-declining per capita utility for infinity?

• The concept of capital, if broadly defined, encompasses all those items that determine the capacity to provide utility: man-made capital (physical capital, human capital, knowledge capital) and natural capital

• Two different approaches that differ in terms of substitutability among different forms of capital


Weak sustainability (WS) (Neumayer 1999)

• Assumption: substitutability between different types of capital (resource optimism)– Substitution between different forms of natural

capital– Substitution between natural capital and man-

made physical capital– Technological progress (dematerialization of

the economy; substitution between natural capital and knowledge capital)


Weak sustainability (WS) (Neumayer 1999)

• WS is guaranteed if aggregate total value of capital is kept at least constant (the sum of value of man-made and natural capital)

• This requires non-negative total net investment

• Genuine saving as a measure of WS (Ch 5)


Strong sustainability (SS) (Neumayer 1999)

• Assumption: low substitutability between natural capital and other forms of capital: natural capital provides services that cannot be provided by other forms of capital (for instance, basic life-support functions) (resource pesimism)– Low substitutability in welfare function (ethical

reasons)– Low substitutability in production function

(physical reasons)


Strong sustainability (SS) (Neumayer 1999)

• Two “versions” of SS:– Keep both the aggregate total value of capital as

well as the aggregate total value of natural capital constant (eg. invest revenues from non-renewable energy sources in renewable energy sources)

– Preserve the physical stock of those forms of natural capital that are non-substitutable.

• Sustainability gap as a measure of SS (Ch 5)


Weak and strong sustainability

• How are substitution possibilities in reality:– Romer (2001) pp. 40, 41: share of income going to

payments to land and natural resources is falling. This is evidence of >1

– But productive (marketed) services from land and natural resources are just a part of total services from nature. Many of them cannot be provided by man-made capital: basic life support functions, ecosystems, biodiversity, climate regulation… This jointly with uncertainties, irreversibilities and threshold effects makes a strong case for the preservation of certain forms of natural capital and the application of the precautionary principle (Neumayer Ch. 4).


Sustainability measures (genuine savings)

• GS=TOTKt+1-TOTKt=Yt-Ct-TOTKt

• (gNNP=Yt-TOTK ->maximum sustainable “consumption”)


Sustainability measures (an example of GS)

Source: Arrow et al. (2004) “Are we consuming too much?” Journal of Economic Perspectives 18(3) pp. 147-172)


Sustainability measures (sustainability gap)

• Determine sustainability standards (which forms of natural capital should be preserved and to what extent)

• Measure sustainability gap (difference between current state and sustainability standard)

• Monetize the sustainability gap (costs to achieving sustainability standards)


The Environmental Kuznets Curve (EKC): what is it?

• Empirical regularity between per capita income and certain types of pollutants

• How is the shape? Where is the turning point?pc income

pollutant


The EKC: how to test it?; which env. variables?

• EKC: 1>0, 2<0, 3=0

• Mainly water and air pollutants (either emissions or concentrations):– De Bruyn and Heintz (1999): SO2 (sulfur dioxide),

suspended particulate matter, NOx (nitrogen oxide), CO2, faecal coliforms, dissolved oxigen, deforestation

– Brock and Taylor (2004) (time series for US): SO2, NOx, CO (carbon monoxide), volatile organic compounds, suspended particulate matter, lead.

tititititititi eZyyyEP ,,43,3

2,2,1,,


The EKC: what are the results?

• Many, but not all of the studies find an EKC (in de Bruyn and Heintz review, 13 out of 22).

• Different results due to different samples, estimation methods and variables included in regression


The EKC: suggested explanations

• Reduced form model: does not give information about the reasons of the relationship

• Useful decomposition into scale, composition and technique effects (Brock and Taylor, 2004; Ekins, 2000):

n

is

n

iaYE

n

iii

i

i

i

i gE

Eg

E

Egg

YsaE

11

1


The EKC: suggested explanations

• Composition effect linked to sectoral changes: limited; implies N shape

• Composition effect linked to international trade: not net change in pollution; possible “race to botton” (see Dasgupta et alt., 2002)

• Technique effect (e.g. lead, Chloro-fluoro-carbons)

• Preferences: environmental goods are luxury goods

• Institutional change: development increases capabilities to devise and enforce environmental regulation


The EKC: implications

• Prudential interpretation: The EKC is evidence that, for certain environmental problems, society has been able to internalize the environmental social costs and it has been feasible to do that without a drag on income growth

• Too optimist interpretation: in the long run, economic growth is not a problem for environmental quality (LDC should not tighten environmental standards that endanger economic growth: first growth, later environment)

• This second argument is flawed because of at least two reasons:– Bold extrapolation to the future– Bold generalization from a set of pollutants to

“environmental quality”


The EKC: implications (cont.)

• In all the EKC cases, regulation is essential for curbing pollution. For regulation information and incentives are needed.

• EKC holds for pollutants with short-term, localized, well-known effects. What about pollutants with long-term, transboundary, or badly-known effects?

• Even if EKC is true, peak may be above thresholds and irreversibility points.


The Natural Resource Curse (NRC): what is it?

• Negative relationship between natural resources abundance and economic growth

• Which kind of natural resources?– Oil, gas and minerals– Agriculture

• Which variables?: those that show the importance of natural resource exploitation in economic activity– Share of exports of primary products in total exports

(totals or for certain subsets)– Share of exports of primary products in GDP (totals or

for certain subsets)


The NRC: what is the evidence?

Strong (conclusive?) evidence in favor of NRC


The NRC: what are the possible causes?

1. Secular decline in terms of trade: • Prebisch and Singer (50s) argued that primary

product exporters (less developed countries) would find themselves disadvantaged in trading with the industrialized countries because of secular decline in terms of trade

• Reasons: appearance of synthetic substitutes; income effects that would reduce relative demand for primary products

• No compelling evidence of long term decline in terms of trade of LDC (see Easterly Ch 10)


The NRC: what are the possible causes? (cont)

2. Institutional effect• Certain type of natural resources generate

large rents which lead to rent-seeking behavior and corruption.

• Different effects between “point source” natural resources (extracted from narrow geographic or economic base: oil, minerals, plantation crops), where “technically” rents can be grabbed easily, and “diffuse” natural resources (crops based on small scale production units), where rents cannot be grabbed so easily (see figure next slide)



2. Institutional effect (cont)

•Natural resource abundance increase the risk of civil war (a sign of institutional failure)



3. “Dutch disease” effect:

• A boom in natural resource sector contracts manufacturing sector because:

– Factors movement effect– Spending effect

• This harms growth if manufacturing is good for growth.

Non-traded sector (NT)

Price determined domestically

Manufacturing sector (M)

Price determined internationally

Natural resource sector (N)

Price determined internationally


Tourism and economic growth


Tourism and economic growthTourism growth in the world

Smeral (2003)

Is tourism good for economic growth?

Tourism specialization and economic growth

Lanza and Pigliaru (1994)

Pigliaru et al. (2003)

Sequeira and Campos (2005)

Effects of a tourism boom

Dwyer et al (2003)

Copeland (1991)

Gooroochurn and Blake (2005)

Nowak et al. (2003)

Sahli and Nowak (2005)

Contribution of tourism to

Spanish economic growth

Balaguer and Cantavella-Jordà

(2002)



Smeral (2003)







Dwyer et al (2003)

Copeland (1991)


Nowak et al. (2003)





(2002)


Tourism growth in the world

• Smeral (2003) wants to jointly explain:– Tourism growth above general economic

growth– Increase in relative price tourism/manufactures– Increase in the share of workers employed in

tourism

• Explanation: lower productivity growth in tourism+tourism is a luxury good (income elasticity of tourism demand higher than 1)



• In general services experience lower labor productivity growth than manufacturing

• High labor productivity growth in manufacturing increases wages not only in manufacturing but in the whole economic system (then also in services)

• Higher wages in services, where productivity grows is slower, translate into higher prices

• This effect is more pronounced in tourism since many of tourism services are embodied (in embodied services productivity growth potential is lower than in disembodied services)



PT/PM

T/M

RS

RD

RS



• At the same time, in a world with growing income, relative tourism demand is boosted because of income effects (tourism is a luxury good). This:– Compensates for the effect on relative demand

of the relative price increase– Further increase tourism relative price– Implies an increase in the share of workers

employed in tourism


RS


PT/PM

T/M

RS

RDRD



Smeral (2003)







Dwyer et al (2003)

Copeland (1991)


Nowak et al. (2003)





(2002)


Tourism specialization and growth

• Is tourism specialization bad for growth? According to a part of growth theory (endogenous growth theory) it should because:– Growth is enhance by specialization in sectors

with high R&D intensity (the tourism sector is not)

– Most countries specialized in tourism are small and smallness is bad for growth when there are scale effects.



• Lanza and Pigliaru (1994), section 2• Consider that productivity growth in tourism is

lower than in manufacturing. Under what conditions tourism specialization is better than specialization in manufactures?

• Answer: considering a CES international utility function, tourism specialization is better if elasticity of substitution in utility is low (<1). In this case, the positive terms of trade effect outweighs the negative productivity effect.



PT/PM

T/M

RS

RD

RS



• Brau, Lanza and Pigliaru (2003)

• Use cross-country growth regressions to test the effect of tourism specialization on economic growth

• Average Growth=Xi+i i=countries

• Include tourism specialization and country size as regressors– “Tourism country”: Int. tourism receipts/GDP>10%

– Small country: population<1 million



• Sequeira and Campos (2005)

• Although “tourism countries” have grown faster than the average, panel data estimations show that tourism specialization is not an independent determinant of growth



Smeral (2003)







Dwyer et al (2003)

Copeland (1991)


Nowak et al. (2003)





(2002)



• Literature that in a multisectoral general equilibrium (GE) framework analyzes the economic effects of an increase in inbound tourism demand. Which effects?– On total income or total welfare– On sectoral production– On functional income distribution

• There are theoretical papers and empirical papers (CGEM)

• This literature has some relationship with the Dutch disease literature (see specially Gooroochurn and Blake, 2005)



• Dwyer et alt. (2003) (1st section)• GE approach shows that tourism growth may have

important negative effects on the rest of the economy– Competition for scarce resources– Increases in factor prices and in exchange rate reduce

competition of export industries and traditional import competing industries

• CGE studies show that tourism growth contribution to economic growth is much more modest than what traditional input-output models predict.


Effects of a tourism boom• Copeland (1991), section I• GE model of an small economy that produces two tradable

goods (agriculture and manufacturing) with prices set internationally and one non-tradable good (services) whose price is determined domestically

• Tourism makes partially tradable what would be non-tradable without tourism (that is, services). However, price of services is still determined domestically.

• Main result: in the absence of taxation, distortions and foreign ownership, an increase in foreign tourism demand benefits the host country only through the increase in the price of non-tradables

• Explanation: an increase in foreign tourism demand increases relative price of services. Since services, thanks to tourism, are “exported”, this implies an improvement in the terms of trade



• Copeland (1991), section I (cont.)• If foreigners own internationally immobile

factors (e.g. land), the tourism boom could reduce welfare.

• Explanation: the tourism boom produce redistributive effects among factor owners. This may favor foreigners against residents. If the income repatriated by foreigners increases enough, the tourism boom reduces residents’ welfare



• Copeland (1991), section I (cont.)

• With internationally mobile factors the positive effect of the tourism boom is weaker because the increase in the price of services is lower.

• Reason: factor mobility makes the supply of services more elastic.



• Copeland (1991), section I (cont.)

• In the presence of taxes (commodity taxes), welfare improvements from an increase in inbound tourism are higher thanks to the increase in taxes paid by tourists.

• With commodity taxes the tourism boom can be welfare improving even if the price of non-tradables does not change



• Sahli and Nowak (2005), Nowak et al (2003) and Gooroocghurn and Blake (2005) explore conditions where tourism growth could be immiserizing

• Nowak et al (2003): in their model a tourism boom may reduce output of the manufacturing sector (reasons similar to the Dutch disease literature). This reduction in manufacturing output is inefficient due to the existence of positive externalities between firms in the manufacturing sector. This negative effect on welfare may compensate the positive effect on welfare due to the increase in the price of non-tradables.



• Gooroochurn and Blake (2005)• Interesting review of the GE literature about

the effects of a tourism boom. Focused on:– Its relationship with Dutch disease literature– The conditions under which a tourism boom

could be immiserizing (increasing returns or monopoly power in the contracting sectors; residents do not consume imports; distortionary trade policy; foreign owned factors)

• CGEM for Mauritius



Smeral (2003)







Dwyer et al (2003)

Copeland (1991)


Nowak et al. (2003)





(2002)


Tourism lifecycle

• Butler (1980)• Different stages of tourism development that form

a logistic curve (for number of visitors) and are characterized by:– Number of visitors– Growth rate of number of visitors– Type of tourist– Accessibility– Amount and type of tourism facilities– Attitude of residents towards tourism– Source of attractiveness– Marketing efforts


Tourism lifecycle

Involvement

Exploration

Development

Consolidation

Stagnation

Rejuvenation

Decline

Time

Num

ber

of to

uris

ts


Tourism lifecycle

• Butler (1980) (cont.)

• TLC model is a very useful and used framework for thinking about the long-term evolution of tourism destinations;

• Possibly the main merit is to highlight the fact that the number of visitors to a tourism destination cannot grow without limit (there is a carrying capacity)


Tourism lifecycle

• Butler (1980) (cont.)• However, I have my doubts whether we can call it

a “model” since in my opinion it cannot be falsified: once all the “caveats” are considered, Butler’s paper admits any behavior. More than a model it is a description of some characteristics of the evolution of some tourism destinations.

• Moreover, regarding the carrying capacity, the paper is ambiguous; suppose that we opt for the rejuvenation; does this mean that there is no true carrying capacity?; or that we can enlarge it?; or that we are surpassing it, with possible disastrous future consequences?; is it good for society to opt for rejuvenation?...


Tourism lifecycle

• In the following slides: two models inspired by TLC that try to explain logistic curve: one based on demand factors and other on a combination of demand and supply factors


Tourism lifecycle

• Lunndtorp and Wanhill (2001)• Two initial comments:

– They identify Butler’s TLC with the logistic curve– Their model is demand driven; do not consider the role of

supply in shaping the evolution of tourism destinations• Use an information diffusion model to explain the

evolution of tourism visitors.• M=potential market• Mt= number of people that know about the

destination• Mthdt=number of “communications” about the

destination (h is speed of info. diffusion)• (Mt-M)/M=share of “uninformed” people


Tourism lifecycle

• Lunndtorp and Wanhill (2001) (cont.)

dtM

MMhMdM t

tt

)( 01 ttht e

MM

t0=time when Mt=M/2

)( 01 tthtt e

pMpMv

P=prob. that an informed person visits the destination

vt=number of visitors


Tourism lifecycle

• Lunndtorp and Wanhill (2001) (cont.)• If the whole market can potentially repeat the

visit, the model yield a pure logistic curve.• If it is admitted that there is a given “non-repeat”

segment of the market, there is a “decline” phase (see figure 5 of article)

• “Once non-repeaters are included in the market, the lifecycle model becomes only an statistical approximation or caricature of reality…” (page 957)


Tourism lifecycle

• Lunndtorp and Wanhill (2001) (cont.)

• They try to fit the logistic equation to two data sets (Isle of Man and Island of Bornholm). The curve fits fairly well except for certain periods. The authors try to give reasons specific to each resort to explain this departures.


Tourism lifecycle

• Lozano et al. (2005)

• Build an environmental growth model to analyze the evolution of tourism destinations


Tourism lifecycle

• Lozano et al. (2005); assumptions• An economy fully specialized in providing

tourism services to foreigners in exchange for a commodity (manufactures) used for consumption and investment

Supply: incentives to build tourism facilities determines tourism accommodation capacity and number of tourists

Demand: willingness to pay determines price paid for private tourism services

Tourism destination characteristics (congestion of public goods and environmental quality)


Tourism lifecycle

• Lozano et al. (2005); assumptions

K=capital, T=tourists, G=public expenditure, N=environment

NT

G

T

KP

i

ii

0<, <1, +<1, >0

NGKTTR

TPTR

1


Tourism lifecycle


Public sector GTRTR

Environment zTNNN

)(

Residents dt

NCeMax

vttt

0

1

0 1

Quality of private services K/T= (constant)


Tourism lifecycle


•All the (positive) effects of environmental quality are external to the decision makers

On tourism priceOn regeneration capacity of the environment On resident’s welfare

•There are external negative effects of bringing more tourists:

On public goods congestionOn environmental quality


Tourism lifecycle

• Lozano et al. (2005); results

• The destination reaches a steady state with constant level of variables (stagnation)

• The reason is not decreasing returns to capital, but reduction in willingness to pay due to congestion of public goods and environmental deterioration


0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

accommodation quality (as % of steady state value of central planner solution)

public

goods

per

tourist

Higher accommodation quality

Congestion (steady state)

Tourism lifecycle


0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

0,1%

15,1

%30

,1%

45,1

%60

,1%

75,1

%90

,1%

105,

1%

120,

1%

135,

1%

150,

1%


env.

qua

lity

in s

tead

y st

ate


Environmental quality (steady state)

Tourism lifecycle


0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

0,1%

15,1

%30

,1%

45,1

%60

,1%

75,1

%90

,1%

105,

1%

120,

1%

135,

1%

150,

1%

accommodation quality (as % of steady state value in central planner solution)

nº t

uris

ts in

ste

ady

stat

e


Visitors (steady state)

Tourism lifecycle


0

0,2

0,4

0,6

0,8

1

1,2

0,1%

15,1

%

30,1

%

45,1

%

60,1

%

75,1

%

90,1

%

105,

1%

120,

1%

135,

1%

150,

1%


tou

rism

re

ven

ue

s in

ste

ad

y st

ate


Tourism revenues (steady state)

Tourism lifecycle


4

5

6

7

8

9

10

0,1% 15,1% 30,1% 45,1% 60,1% 75,1% 90,1% 105,1%120,1%135,1%150,1%


stea

dy s

tate

util

ity


Resident’s welfare (steady state)

Tourism lifecycle


0

0,2

0,4

0,6

1 51 101 151 201

time

nº

turist

s

Logistic shape

Higher accommodation quality delays stagnation

Initially low tourism development: little man made capital and plenty of natural capital

Visitors (dynamics)

Tourism lifecycle


0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1 51 101 151 201time

tour

ism

rev

enue

s

Tourism revenues (dynamics) Logistic shape

Tourism lifecycle


0,35

0,45

0,55

0,65

0,75

0,85

0,95

1 21 41 61 81 101 121 141 161 181 201 221

time

envi

ronm

enta

l qua

lity

Environmental quality (dynamics) (% of initial level)

Tourism lifecycle


0

0,2

0,4

0,6

0,8

1

1 51 101 151 201

time

pu

blic

go

od

s p

er

tou

rist

(%

of i

niti

al

leve

l)

Congestion (dynamics)

Tourism lifecycle


4

4,5

5

5,5

6

6,5

7

7,5

8

8,5

9

1 51 101 151 201 251

time

inst

anta

neou

s ut

ility

low K/T

intermediate K/T

high K/T

Resident’s welfare (dynamics)

Tourism lifecycle

javier lozano 1 growth, tourism and the environment javier lozano universitat de les illes balears...

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