Anan Wattanakuljarus AAE-875 Growth, trade and the environment in developing countries

Contents 1.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 Thai Economy: Thai Sectors

Percentage share of GDP at 1988 prices Source: Office of the National Economic and Social Development Board, Office of the Prime Minister Agriculture Manufacturing Crops Construction Livestock Electricity and water supply Fisheries Transportation and communication Forestry Wholesale and retail trade Agricultural services Banking, insurance and real estate Simple agricultural processing products Ownership of dwellings Mining and quarrying Public administration and defense Services

Tourism revenue share of GDP at current prices Source: Office of the National Economic and Social Development Board, Office of the Prime Minister GDP4,608,4914,727,3174,635,9254,688,372n/a Agriculture510,400541,864620,182553,335n/a Manufacture1,298,8171,349,2781,354,3941,452,223n/a Construction343,873270,012176,202161,473n/a Service and Other2,455,4012,566,1632,485,1472,521,341n/a Tourism Revenue219,364220,755242,177253,018285,272299,047

Percentage tourism revenue share of GDP at current prices Source: Office of the National Economic and Social Development Board, Office of the Prime Minister Agriculture Manufacture Construction Service and Other Tourism Revenue/GDP Tourism Revenue/ GDP of Service and Other

Comparison of revenue from tourism and other major exports: millions baht Source: Ministry of Commerce Tourism219,364Tourism220,303 Computers & parts167,674Cars & parts220,755 Textile products79,875Textile products97,136 Rubber63,373Computers & parts75,838 Integrated circuits58,539Rubber65,093 Precious Stones54,273Canned seafood57,450 Rice50,735Rice55,622 Prawns43,404Precious Stones49,309 Radio, TV and parts34,627Prawns47,184 Canned seafood34,244Radio, TV and parts43,579 Cars & parts15,829Integrated circuits32,761

Comparison of revenue from tourism and other major exports: millions baht Source: Ministry of Commerce Tourism320,526Tourism304,982 Integrated circuits242,177Rubber253,018 Textile products123,133Integrated circuits111,767 Cars & parts93,833Textile products110,356 Computers & parts86,803Cars & parts73,812 Canned seafood67,952Computers & parts70,111 Precious Stones58,343Canned seafood65,957 Prawns58,058Precious Stones59,821 Rice57,350Prawns48,348 Radio, TV and parts55,407Rice47,233 Rubber49,063Radio, TV and parts43,942

Percentage of Employed Persons by Industry: 1989 – 2000 Source : Report of the Labor Force Survey : , National Statistical Office 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)

Average Wages of Employed Persons by Industry for Whole Kingdom: 1989 – 2000 (*) (*) Relative to the base average wage for the total employed person which is 1 Source : Report of the Labor Force Survey : , National Statistical Office Year Agriculture (1) Non-Agriculture Average of Ag, Mine, Manu (1) to (3) Average of Non-Ag and Non-Manu (4) to (9) Mining (2) Manufacture (3) Construction (4) Electricity sanitary services (5) Commerce (6) Transport (7) Services (8) Other (9)

Thai Core Environment Indicators

Climate Climate Natural Disasters Natural Disasters Land and Land Use Land and Land Use Forest Forest Energy Energy Water Water Hazardous Waste and Waste Hazardous Waste and Waste Water Pollution Water Pollution Air Pollution Air Pollution Noise Pollution Noise Pollution

Land, Land Use and Forest Source: National Statistical Office, Office of the Prime Minister Total land (Sq. km.)513,115 Forest land (%) Area of agricultural holding (%) Others (%) Forest land (Sq. km.) 131,485129, ,050 Percentage of protected area per total land (%) Proportion of wood production per domestic wood-apparent (%)

Water Source: National Statistical Office, Office of the Prime Minister Percentage of effective storage capacity per active storage (%) Percentage of raw water use to pipe of water per total (%) - From surface water (%) …… - From subsurface water (%) …… Average pipe water consumption (Cu. m/Case/Month) - The Metropolitan Waterworks Authority The Provincial Waterworks Authority

Hazardous Waste and Waste Hazardous Waste and Waste Source: National Statistical Office, Office of the Prime Minister Total waste (1,000 Tons)13, , , ,932.1… In Bangkok (%) … Municipality and Mueang Pattaya (%) … Non - municipality (%) … Total hazardous waste (1,000 Tons)1,7181,6371,6001,650 Industrial hazardous waste (%) Domestic hazardous waste (%)

Water Pollution Water Pollution Standard Value DO = Dissolved Oxygen > 2.0 mg./l. BOD = Biochemical Oxygen Demand < 4.0 mg./l. TCB = Total Coliform Bacteria < 20,000 MPN/100 ml. Source: National Statistical Office, Office of the Prime Minister Chaophraya River (Lower) DO (mg./l.) BOD (mg./l.) TCB (MPN/100ml.) 46,00014,50044,15663,000 Thachin River (Lower) DO (mg./l.) BOD (mg./l.) TCB (MPN/100ml.) 24,0002,40097,846100,000 Mae Klong River DO (mg./l.) BOD (mg./l.) TCB (MPN/100ml.)3, ,8383,900 Bang Pakong River DO (mg./l.) BOD (mg./l.) TCB (MPN/100ml.) ,9456,

Air Pollution Air Pollution Source: National Statistical Office, Office of the Prime Minister Emissions per GDP at 1988 prices (Gram/Baht) Carbon Dioxide (CO 2 ) Nitrogen Oxide (NO x )0.2 Sulfur Dioxide (SO 2 ) Air quality on road side in Bangkok (Average) Total Suspended Particulate Matter (24 hrs.) (mg./cu. m)--0.2 Suspended Particulate Matter PM-10 (24 hrs.) (microgram/cu. m) Carbon monoxide(8 hrs.) (ppm.) Ozone (1 hr.) (ppb) Sulfur dioxide (24 hrs.) (ppb)

Thai Tourism Industry Statistics of Tourism in Thailand

Number of Tourists Note: Number of tourism excluding overseas Thai. Source: The Tourism Authority of Thailand

Purpose of Visit Thailand (%) Note: Number of tourism excluding overseas Thai. Source: The Tourism Authority of Thailand Year Purpose of Visit (percent, %) Vacation Business Convention Others

Reasons of Visit Thailand in Low Season 2001 (%) Note: Tourists answer in order and no more than three reasons Source: The Tourism Authority of Thailand Reasons to Visit Thailand Percentage (%) Cheap and Worth for Money Tradition, Art, and Culture Shopping Beach, Sea, and Island Thai Foods Accommodation, Good Service Nature, and Mountain As of Packaged Tour 9.25 Safety 8.69 Sports 2.55 Other 21.15

Occupation of Tourists (%) Note: Number of tourism excluding overseas Thai. Source: The Tourism Authority of Thailand Year Occupation (percent, %) Professionals Administrative managerial Commercial personnel Laborers, production Other and not stated

Tourist Consumption Expenditure Note: Number of tourism excluding overseas Thai. Source: The Tourism Authority of Thailand

Percentage Share of Tourist Expenditure Note: Number of tourism excluding overseas Thai. Source: The Tourism Authority of Thailand Expenditure Accommodation Food and beverage Sightseeing6644 Local transport6777 Shopping Entertainment10 11 Miscellaneous5354

Average Days of Stay in Thailand Note: Number of tourism excluding overseas Thai. Source: The Tourism Authority of Thailand Year Average days of stay

Quantity of Accommodations Accommodations: Hotel, Guest House, Bangalore, Resort, Raft, Apartment, Motel Source: The Tourism Authority of Thailand

What does tourism promotion mean for welfare and environment?

General Equilibrium Model

The General Equilibrium Model NATURE PARK LAND RURAL TOURISM AGRICULTURE LABOR URBAN TOURISM MANUFACTURING CAPITAL RURAL AREAURBAN AREA POLLUTION EXPORT OR IMPORT

Summary of Notation rRural tourism sUrban tourism aAgriculture mManufacture x i Domestic demand for good i y i Domestic supply of good i p i Price of good i LLabor endowment KCapital endowment lLand endowment, l =1 TLand used in agriculture nNatural Park, (n+T=1) uAggregate utility level zPollution emitted from manufacturing tPollution tax tTariff M i Net import of tradable good i

Summary of Functions Aggregate Expenditure Function Aggregate Expenditure Function Total Revenue Function Total Revenue Function

Aggregate Expenditure Function

Aggregate Expenditure Function (1) Homogenous of degree one in all prices Homogenous of degree one in all prices Concave in prices Concave in prices Non-decreasing in prices, utility, pollution emission, and natural park Non-decreasing in prices, utility, pollution emission, and natural park

Aggregate Expenditure Function (2) Shephards lemma, the demand for good i Shephards lemma, the demand for good i Output demand is downward sloping Output demand is downward sloping The shadow price of clean environment, or the marginal willingness for consumer to pay to for clean environment The shadow price of clean environment, or the marginal willingness for consumer to pay to for clean environment

Aggregate Expenditure Function (3) The shadow price of natural park, or the marginal willingness for consumer to pay to preserve natural park: The shadow price of natural park, or the marginal willingness for consumer to pay to preserve natural park: Utility function Utility function

Total Revenue Function

Total Revenue Function (1) Homogenous of degree one in all prices Homogenous of degree one in all prices Homogenous of degree one in all factor endowments Homogenous of degree one in all factor endowments

Total Revenue Function (2) Convex in prices Convex in prices Concave in factor endowments Concave in factor endowments The supply of good i The supply of good i

Total Revenue Function (3) Output supply is upward sloping Output supply is upward sloping The quantity of pollution emitted The quantity of pollution emitted

Total Revenue Function (4) The wage of factor The wage of factor Factor demand is downward sloping Factor demand is downward sloping

Equilibriu m Conditions

Equilibrium Conditions (1) The economys budget constraint The economys budget constraint total expenditure = total revenue [1]

Equilibrium Conditions (2) Net import of tradable goods Net import of tradable goods [2] to [5] Good is imported if Good is imported if Good is exported if Good is exported if

Equilibrium Conditions (3) Pollution Pollution[6] Land market Land market[7] Inverse world demand for rural tourism Inverse world demand for rural tourism[8] Inverse world demand for urban tourism Inverse world demand for urban tourism[9]

Welfare Analysis

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 and are set by world demand for rural and urban tourism

Welfare Analysis (2) Total differentiate [1], yield Total differentiate [1], yield Rearrange and using [2] to [6], yield Rearrange and using [2] to [6], yield[10]

Welfare Analysis (3) Total differentiate [8], and rearrange, yield Total differentiate [8], and rearrange, yield[11][11]

Welfare Analysis (4) Similarly, total differentiate [9], yield Similarly, total differentiate [9], yield[12][12] Where, for Where, for Proportional change of tourism prices Proportional change of tourism import

Welfare Analysis (5) Own inverse elasticity of world demand for tourism Cross inverse elasticity of world demand for tourism Inverse elasticity of Natural Park to tourism prices Inverse elasticity of pollution to tourism prices

Welfare Analysis (6) Substitute [11] and [12] in [10] and rearrange, yield Substitute [11] and [12] in [10] and rearrange, yield[13]

Policy Implications Tourism Promotion Policy

Tourism Promotion Policy (1) I would like to analyze the effects of tourism promotion policy on the social welfare. I would like to analyze the effects of tourism promotion policy on the social welfare. The tourism promotion policy indicates the increases in rural tourism export and/or urban tourism export, i.e. The tourism promotion policy indicates the increases in rural tourism export and/or urban tourism export, i.e. For simplicity and isolation of the problem, I assume that there are no tariffs, i.e. free trade policy in all sectors. For simplicity and isolation of the problem, I assume that there are no tariffs, i.e. free trade policy in all sectors. Therefore, the welfare effects equation is reduced to [13A] below: Therefore, the welfare effects equation is reduced to [13A] below:

Tourism Promotion Policy (2) [13A]

The Sign (1) If both rural and urban tourism are normal goods with inelastic demand, then If both rural and urban tourism are normal goods with inelastic demand, then If both rural and urban tourism are normal goods with elastic demand, then If both rural and urban tourism are normal goods with elastic demand, then If rural and urban tourism are substitutes, then If rural and urban tourism are substitutes, then If rural and urban tourism are complements, then If rural and urban tourism are complements, then

The Sign (2) As mentioned before, this is the shadow price of clean environment (the marginal willingness for consumer to pay for clean environment) As mentioned before, this is the shadow price of clean environment (the marginal willingness for consumer to pay for clean environment) As mentioned before, this is the shadow price of natural park (the marginal willingness for consumer to pay to preserve natural park) As mentioned before, this is the shadow price of natural park (the marginal willingness for consumer to pay to preserve natural park)

The Sign (3) Natural park has a positive externality on rural tourism. If natural park demand is stronger than natural park supply, then an increase in prices of rural tourism decreases natural park. Natural park has a positive externality on rural tourism. If natural park demand is stronger than natural park supply, then an increase in prices of rural tourism decreases natural park. In addition, if rural and urban tourism are substitutes, then if rural and urban tourism are complements, then if rural and urban tourism are complements, then

The Sign (4) If natural park supply is stronger than natural park demand, then an increase in prices of rural tourism increases natural park If natural park supply is stronger than natural park demand, then an increase in prices of rural tourism increases natural park In addition, if rural and urban tourism are substitutes, then if rural and urban tourism are complements, then if rural and urban tourism are complements, then

The Sign (5) Pollution has a negative externality on urban tourism. If urban tourism demand is stronger than urban tourism supply, then an increase in pollution decreases urban tourism demand, and so decreases prices of urban tourism. Pollution has a negative externality on urban tourism. If urban tourism demand is stronger than urban tourism supply, then an increase in pollution decreases urban tourism demand, and so decreases prices of urban tourism. In addition, if rural and urban tourism are substitutes, then if rural and urban tourism are complements, then if rural and urban tourism are complements, then

Example of Policy Implication

Example of Policy Implication (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: If rural and urban are complements, then there is a welfare improvement. If rural and urban are complements, then there is a welfare improvement. If rural and urban are substitutes, then welfare effects are ambiguous. If rural and urban are substitutes, then welfare effects are ambiguous.

Example of Policy Implication (2) Example 2: Rural and urban tourism promotion: Rural and urban tourism promotion:Then: If rural and urban are complements, and there is a perfect property right or tax system on both natural park and pollution so that: If rural and urban are complements, and there is a perfect property right or tax system on both natural park and pollution so that: So there is a welfare improvement. And the optimal shadow price of natural park, and the optimal pollution tax are: So there is a welfare improvement. And the optimal shadow price of natural park, and the optimal pollution tax are:

Example of Policy Implication (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: If rural and urban are complements, then an increase in natural park ambiguously improve welfare if If rural and urban are complements, then an increase in natural park ambiguously improve welfare if Note: If people do not care about natural park,, then an increase in natural park ambiguously improve welfare if Note: If people do not care about natural park,, then an increase in natural park ambiguously improve welfare if

Example of Policy Implication (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: If rural and urban are complements, then a decrease in pollution ambiguously improve welfare if If rural and urban are complements, then a decrease in pollution ambiguously improve welfare if

Other Results There are many other implication results which could be drawn from the welfare equation [13]. These results are left for further exercises. There are many other implication results which could be drawn from the welfare equation [13]. These results are left for further exercises. Further research is also needed in order to determine the own price and cross price elasticities as well as other elasticities for the amenity such as natural park and pollution. Further research is also needed in order to determine the own price and cross price elasticities as well as other elasticities for the amenity such as natural park and pollution.

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