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Tourism infrastructure and the environment: how does environmental regulation affect welfare, tourism industry, and domestic wage inequality?

Author

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  • Takanori Shimizu

    (University of Hyogo)

  • Hisayuki Okamoto

    (Sonoda Women’s University)

Abstract

This study presents a general equilibrium model of a small open developing economy with pollution generated by the tourism industry. The national government issues emission permits and constructs tourism infrastructure for the tourism sector. We examine the effects of a stricter environmental regulation on welfare, production, and income distribution. If the elasticity of substitution in the tourism sector is sufficiently low, a stricter environmental regulation paradoxically expands the tourism sector and narrows domestic wage inequality, even under constant tourism terms of trade. In this model, in addition to the two traditional channels, there is a new channel through which a stricter environmental regulation affects the tourism terms of trade and domestic welfare. The new channel, which arises from the difference between the marginal value product of tourism infrastructure and its price, improves the tourism terms of trade and domestic welfare if (1) the marginal value product of tourism infrastructure is greater than its price, (2) the output of tourism infrastructure is increased by a stricter environmental regulation, and (3) the excess supply of a tourism service decreases with a stricter environmental regulation.

Suggested Citation

  • Takanori Shimizu & Hisayuki Okamoto, 2024. "Tourism infrastructure and the environment: how does environmental regulation affect welfare, tourism industry, and domestic wage inequality?," The Japanese Economic Review, Springer, vol. 75(1), pages 147-179, January.
    • Handle: RePEc:spr:jecrev:v:75:y:2024:i:1:d:10.1007_s42973-021-00109-4
    DOI: 10.1007/s42973-021-00109-4
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    More about this item

    Keywords

    Tourism infrastructure; Environmental regulation; Welfare; Wage inequality;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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