Dependency Model with Congestion and Tourism
- 1 Lattice Analytics Pty Ltd., Melbourne, Australia
- 2 School of Finance, Guangdong University of Foreign Studies, Guangzhou, China
- 3 Southern China Institute of Fortune Management Research, Guangzhou, China
Abstract
This paper presents results regarding the impact of regional and international tourism on the welfare of the domestic economy in the presence of congestion. The model used for this purpose is the dependency model of trade. Three main results are obtained from our investigation. First, it is established that an increase in regional tourism is welfare enhancing in the absence of congestion externalities due to an improvement in the tertiary terms of trade. Second, it is shown that in the presence of congestion, the welfare effect of an increase in tourism is ambiguous as there are three effects: 1) an improvement in the tertiary terms of trade, 2) a congestion effect and 3) a favorable effect on congestion via a decline in it due to the price effect. To correct the distortions policy intervention is required. This takes the form of two simultaneous policies: a tax on the goods consumed by the tourists and a tax on congestion by creating property rights. The results are of great significance for policy making.
- Buchanan, J. (1965). An Economic Theory of Clubs. Economica, 32, 1-14. https://doi.org/10.2307/2552442
- Chao, C. C., Hazari, B. R., Laffargue, J. P., & Eden, S. H. Y. (2009). Is Free Trade Optimal for a Small Open Economy with Tourism? In: T. Kamihigashi, & L. Zhao (Eds.), International Trade and Economic Dynamics (pp. 49-62). Berlin, Heidelberg: Springer.
- Hazari, B. R., & Ng, A. (1993). An Analysis of Tourists’ Consumption of Non-Traded Goods and Services on the Welfare of the Domestic Consumers. International Review of Finance and Economics, 2, 43-58. https://doi.org/10.1016/1059-0560(93)90030-T
- Hazari, B. R., & Pasquale, M. S. (2004). Tourism, Trade, and National Welfare. Published by Elsevier. https://doi.org/10.1108/S0573-8555(2004)265
- Hazari, B. R., & Yao, S. (2009). Externalities. In B. Hazari, & C. Y. Ho (Eds.), Lectures on Core Microeconomics (Chapter 7). New York: Nova Science Publishers.
- Hazari, B. R., Sgro, P. M., & Suh, D. C. (1980). A Simple Geometrical Treatment of Non-Traded Goods in the Pure Theory of International Trade. Keio Economic Studies, 17, 91-104.
- Laffont, J. J. (1989). Fundamentals of Public Economics. Cambridge, MA: MIT Press.
- Lancaster, K. (1966). A New Approach to Consumer Theory. Journal of Political Economy, 74, 132-157. https://doi.org/10.1086/259131