Assessing the Economic Impact of Tourism by Samuel Meng & Mahinda Siriwardana

Author:Samuel Meng & Mahinda Siriwardana
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

and

(5.49)

where is the percentage change in γ i  ,  θ i , respectively, (1−α i ) is the subsistence consumption share for each commodity, and α i is the supernumerary consumption share.

Differentiating the household utility function:

we have:

or

(5.50)

This is the function for the average utility per household in linear form.

5.5 Tourism Demand

Since we use a single-country model to analyse inbound tourism, the income from tourists is decided outside of the model. Thus, we assume that the total tourism spending is dependent on tourists’ sensitivity to the price level of tourism goods. When it comes to the spending on specific tourism goods, the tourism expenditure pattern matters.

In any journey, tourists require certain amounts of different services such as accommodation, food, and transportation, regardless of their relative price, because it is difficult for tourists to substitute one good or service for another. As such, a Leontief function is proper to describe this tourists’ spending pattern.

However, tourism shopping expenditure is totally different. Tourism is widely considered as a luxury activity, so tourism shopping is most likely concentrated on luxury goods and is more flexible than general shopping. In the case that some tourists are financially constrained, their shopping spending will be a very small part of the total tourism shopping expenditure because tourism shopping is not an indispensable part of their expenditure. Since the subsistence part of tourism shopping expenditure is negligible, the LES function used in the household sector reduces to the Cobb–Douglas (CD) function. This reasoning is confirmed by the Singapore Tourism Survey data (STB, 2004, 2005, 2006): the proportion of tourism shopping expenditure on different categories of goods has barely changed in recent years. As such, a CD function is suitable to describe the tourism shopping pattern.

With this knowledge, we have the following tourism expenditure pattern: at the top level, the tourism demand is determined by their demand for composite tourism shopping and non-shopping services, described by the CES function; the composite tourism non-shopping services are made up of a fixed proportion of various goods, which in turn is a flexible composition (CES function) of imported and domestic goods; and the composite tourism shopping services are a CD composition of a range of goods that in turn are CES composited imports and domestic goods. The structure of the nested tourism utility function is shown in Fig. 5.4.

Fig.5.4Tourism demand

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