aae-875 growth, trade and the environment in developing countries anan wattanakuljarus

AAE-875

Growth, trade and the environment

in developing countries

Anan Wattanakuljarus

Contents1. 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

Percentage share of GDP at 1988 prices

Source: Office of the National Economic and Social Development Board,

Office of the Prime Minister

1996

1997

1998

1996

1997

1998

Agriculture 10.56 10.78 11.83 Manufacturing 31.32 32.15 31.94

Crops 6.30 6.57 7.15 Construction 6.38 4.76 3.24

Livestock 1.04 1.04 1.10Electricity and water

supply 2.66 2.85 3.08

Fisheries 1.60 1.56 1.85Transportation and

communication 8.61 9.15 9.23

Forestry 0.13 0.12 0.11Wholesale and retail

trade 16.04 15.62 14.85

Agricultural services 0.28 0.27 0.30Banking, insurance and

real estate 7.47 6.70 5.65

Simple agricultural processing products 1.22 1.22 1.32 Ownership of dwellings 2.70 2.93 3.41

Mining and quarrying 1.69 1.94 2.03

Public administration and defense 2.59 2.71 3.22

Services 9.98 10.42 11.53

Tourism revenue share of GDP at current prices



1996 1997 1998 1999 2000 2001

GDP 4,608,491 4,727,317 4,635,925 4,688,372 n/a n/a

Agriculture 510,400 541,864 620,182 553,335 n/a n/a

Manufacture 1,298,817 1,349,278 1,354,394 1,452,223 n/a n/a

Construction 343,873 270,012 176,202 161,473 n/a n/a

Service and Other 2,455,401 2,566,163 2,485,147 2,521,341 n/a n/a

Tourism Revenue 219,364 220,755 242,177 253,018 285,272 299,047

Percentage tourism revenue share of GDP at current prices



1996 1997 1998 1999

Agriculture 11.08 11.46 13.38 11.80

Manufacture 28.18 28.54 29.22 30.97

Construction 7.46 5.71 3.80 3.44

Service and Other 53.28 54.28 53.61 53.78

Tourism Revenue/GDP 4.76 4.67 5.22 5.40

Tourism Revenue/ GDP of Service

and Other 8.93 8.60 9.74 10.04

Comparison of revenue from tourism

and other major exports: millions baht

Source: Ministry of Commerce

1996 1997

Tourism 219,364 Tourism 220,303

Computers & parts 167,674 Cars & parts 220,755

Textile products 79,875 Textile products 97,136

Rubber 63,373Computers & parts

75,838

Integrated circuits 58,539 Rubber 65,093

Precious Stones 54,273 Canned seafood 57,450

Rice 50,735 Rice 55,622

Prawns 43,404 Precious Stones 49,309

Radio, TV and parts 34,627 Prawns 47,184

Canned seafood 34,244Radio, TV and

parts 43,579

Cars & parts 15,829 Integrated circuits 32,761

Comparison of revenue from tourism and other major exports: millions baht

Source: Ministry of Commerce

1998 1999

Tourism 320,526 Tourism 304,982

Integrated circuits 242,177 Rubber 253,018

Textile products 123,133 Integrated circuits 111,767

Cars & parts 93,833 Textile products 110,356

Computers & parts 86,803 Cars & parts 73,812

Canned seafood 67,952Computers & parts

70,111

Precious Stones 58,343 Canned seafood 65,957

Prawns 58,058 Precious Stones 59,821

Rice 57,350 Prawns 48,348

Radio, TV and parts 55,407 Rice 47,233

Rubber 49,063Radio, TV and

parts 43,942

Percentage of Employed Persons by Industry: 1989 – 2000

Source : Report of the Labor Force Survey : 1989 - 2000, 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)

1989 57 12 4 12 3 11 1 31

1990 64 10 3 10 2 10 1 26

1991 51 14 6 13 3 12 1 35

1992 51 15 7 12 3 12 1 34

1993 49 15 6 13 3 13 1 36

1994 44 16 8 14 3 14 1 40

1995 41 17 9 15 4 14 1 43

1996 40 17 10 15 3 14 1 43

1997 39 17 10 15 4 15 1 44

1998 40 17 7 16 4 16 1 44

1999 42 16 5 16 4 16 1 42

2000 40 17 6 17 3 16 1 43

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 : 1989 - 2000, National Statistical Office

YearAgriculture

(1)

Non-AgricultureAverage

of Ag, Mine, Manu

(1) to (3)

Average of Non-Ag

and Non-Manu

(4) to (9)Mining

(2)Manufacture

(3)Construction

(4)

Electricitysanitary services

(5)Commerce

(6)Transport

(7)Services

(8)Other

(9)

1989 0.54 1.11 0.90 0.93 2.09 1.26 1.54 1.39 1.45 0.85 1.44

1990 0.46 0.97 0.84 0.84 2.35 1.30 1.47 1.38 1.20 0.76 1.42

1991 0.53 - 0.83 0.90 2.70 1.00 1.63 1.48 - 0.45 1.29

1992 0.52 1.00 0.91 0.83 1.85 1.33 1.63 1.41 1.29 0.81 1.39

1993 0.49 0.97 0.86 0.80 2.25 1.31 1.43 1.41 1.17 0.77 1.40

1994 0.51 0.92 0.91 0.72 2.10 1.36 1.48 1.36 1.00 0.78 1.34

1995 0.50 0.91 0.87 0.76 2.05 1.24 1.37 1.44 1.65 0.76 1.42

1996 0.51 0.78 0.92 0.75 1.85 1.32 1.33 1.40 2.68 0.74 1.56

1997 0.53 0.96 0.92 0.72 1.85 1.29 1.51 1.36 0.75 0.80 1.25

1998 0.52 0.97 0.88 0.71 2.20 1.31 1.54 1.29 1.13 0.79 1.36

1999 0.49 0.68 0.89 0.73 2.38 1.18 1.46 1.31 1.40 0.69 1.41

2000 0.47 0.99 0.87 0.72 1.98 1.34 1.68 1.30 1.14 0.78 1.36

Thai Core Environment Indicators

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

Land, Land Use and Forest

Source: National Statistical Office, Office of the Prime Minister

1997 1998 1999 2000 2001

Total land (Sq. km.)513,11

5513,11

5513,11

5513,11

5 513,115

Forest land (%) 26.0 25.3 25.3 25.3 33.5

Area of agricultural holding (%) - 34.8 - - -

Others (%) - 39.9 - - -

Forest land (Sq. km.) 131,485 129,722 129,722 129,722 172,050

Percentage of protected area per total land (%) 15.3 15.8 16.9 17.8 -

Proportion of wood production per domestic wood-apparent (%) 2.6 4.7 3.4 3.1 -

Water


1997 1998 1999 2000 2001

Percentage of effective storage capacity per active storage (%) 74.5 61.7 31.5 73.4 81.2

Percentage of raw water use to pipe of water per total (%)

- From surface water (%) 79.0 79.7 79.7 … …

- From subsurface water (%) 7.6 7.0 6.5 … …

Average pipe water consumption (Cu. m/Case/Month)

- The Metropolitan Waterworks Authority 58.8 55.4 51.6 52.2 53.9

- The Provincial Waterworks Authority 25.8 23.8 21.8 21.8 22.6

Hazardous Waste and Waste


1997 1998 1999 2000 2001

Total waste (1,000 Tons)13,542.

213,594.

813,825.

813,932.

1 …

In Bangkok (%) 24.1 22.8 23.7 23.9 …

Municipality and Mueang Pattaya (%) 35.1 32.7 32.6 30.9 …

Non - municipality (%) 40.8 44.5 43.7 45.2 …

Total hazardous waste (1,000 Tons) 1,718 1,637 1,600 1,650 1,650

Industrial hazardous waste (%) 81.5 79.7 78.1 78.2 77.6

Domestic hazardous waste (%) 18.5 20.3 21.9 21.8 22.4

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.


1997 1998 1999 2000

Chaophraya River (Lower)

DO (mg./l.) 0.5 1.0 1.8 2.0

BOD (mg./l.) 3.1 2.8 3.3 2.6

TCB (MPN/100ml.)

46,000

14,500

44,156 63,000

Thachin River (Lower)

DO (mg./l.) 1.0 1.3 1.0 1.0

BOD (mg./l.) - 2.0 4.1 4.0

TCB (MPN/100ml.)

24,000 2,400

97,846

100,000

Mae Klong River

DO (mg./l.) 6.0 8.0 6.1 6.2

BOD (mg./l.) 1.3 1.0 1.0 1.1

TCB (MPN/100ml.) 3,200 790 3,838 3,900

Bang Pakong River

DO (mg./l.) 4.3 4.7 4.8 3.9

BOD (mg./l.) 0.9 0.9 1.6 1.7

TCB (MPN/100ml.) 500 195 8,945 6,200

1997 1998 1999 2000

Air Pollution


1997 1998 1999 2000

Emissions per GDP at 1988 prices (Gram/Baht)

Carbon Dioxide (CO2) 51.5 52.3 51.6 49.1

Nitrogen Oxide (NOx) 0.2 0.2 0.2 0.2

Sulfur Dioxide (SO2) 0.5 0.3 0.3 0.2

Air quality on road side in Bangkok (Average)

Total Suspended Particulate Matter

(24 hrs.) (mg./cu. m) - - 0.2 0.2

Suspended Particulate Matter PM-10

(24 hrs.) (microgram/cu. m) - - 80.1 82.6

Carbon monoxide(8 hrs.) (ppm.) - - 2.3 2.2

Ozone (1 hr.) (ppb) - - 6.9 7.6

Sulfur dioxide (24 hrs.) (ppb) - - 8.2 9.2

Number of Tourists 1996-2002

Note: Number of tourism excluding overseas Thai.

Source: The Tourism Authority of Thailand

Fig-1: Number of Tourists

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

1995 1996 1997 1998 1999 2000 2001 2002 2003

Year

Per

son

Purpose of Visit Thailand (%)1996-2002



Year

Purpose of Visit (percent, %)

Vacation Business Convention Others

1996 87 10 1 2

1997 87 10 1 2

1998 88 9 1 2

1999 88 9 1 2

2000 88 9 1 2

2001 88 9 1 2

2002 89 8 1 2

Reasons of Visit Thailand in Low Season 2001 (%)

Note: Tourists answer in order and no more than three reasons


Reasons to Visit Thailand Percentage (%)

Cheap and Worth for Money 42.46

Tradition, Art, and Culture 41.32

Shopping 39.46

Beach, Sea, and Island 32.87

Thai Foods 20.14

Accommodation, Good Service 13.72

Nature, and Mountain 10.22

As of Packaged Tour 9.25

Safety 8.69

Sports 2.55

Other 21.15

Occupation of Tourists (%) 1996-2002



Year

Occupation (percent, %)

Professionals Administrative

managerial Commercial personnel

Laborers, production

Other and not stated

1996 17 12 18 18 36

1997 19 13 17 15 37

1998 22 11 17 15 35

1999 19 11 17 18 35

2000 15 11 17 20 37

2001 15 11 17 19 39

2002 15 11 17 17 40

Tourist Consumption Expenditure 1996-2002



Fig-2: Tourist consumption expenditure

219,364 220,754

242,177

253,018

200,000

210,000

220,000

230,000

240,000

250,000

260,000

1 2 3 4

Year (1=1996, 4=1999)

Mil

lio

n B

ah

t

Percentage Share of Tourist Expenditure 1996-2002



Expenditure 1996 1997 1998 1999

Accommodation 20 25 27 24

Food and beverage 15 15 16 15

Sightseeing 6 6 4 4

Local transport 6 7 7 7

Shopping 38 34 29 35

Entertainment 10 10 11 11

Miscellaneous 5 3 5 4

Average Days of Stay in Thailand 1996-2002



Year Average days of stay

1996 8.23

1997 8.33

1998 8.4

1999 7.96

2000 7.77

2001 7.96

2002 7.98

Quantity of Accommodations 1997-2001

Accommodations: Hotel, Guest House, Bangalore, Resort, Raft, Apartment, Motel


Quantity of Accommodations

4762 4454 48375525 5701

0

2000

4000

6000

1 2 3 4 5

Year, 1= 1997, 5 = 2001

Quan

tity

The General Equilibrium Model

NATURE

PARK

LAND

RURAL TOURISM

AGRICULTURE

LABOR

URBAN TOURISM

MANUFACTURING

CAPITAL

RURAL AREA URBAN AREA

POLLUTION

EXPORT OR IMPORT

Summary of Notationr Rural tourism s Urban tourisma Agriculture m Manufacturexi Domestic demand

for good iyi Domestic supply

of good i pi Price of good i

L Labor endowmentK Capital endowment

l Land endowment, l =1T Land used in agriculturen Natural Park, (n+T=1)u Aggregate utility level z Pollution emitted from

manufacturing t Pollution taxt TariffMi Net import of tradable

good i

Summary of Functions

• Aggregate Expenditure Function

• Total Revenue Function

),,,,,,( uznppppE masr

}|{min uxpxpxpxp mmaassrrx

),,,,,,,( KLnppppG masr },|.{max KLzypypypyp mmaassrr

y

Aggregate Expenditure Function (1)

• Homogenous of degree one in all prices

• Concave in prices

• Non-decreasing in prices, utility, pollution emission, and natural park

),,,(),,,( uznpEuznpE

0,0 iii ppp EE

0,,, nzup EEEEi


• Shephard’s lemma, the demand for good i

• Output demand is downward sloping

• The shadow price of clean environment, or the marginal willingness for consumer to pay to for clean environment

0 ip xEi

0 iipp pxEii

0zE


• The shadow price of natural park, or the marginal willingness for consumer to pay to preserve natural park:

• Utility function

0nE

),,( znxuu

0,0,0 znx uuu

Total Revenue Function (1)

• Homogenous of degree one in all prices

• Homogenous of degree one in all factor endowments

),,,,(),,,,( KLnpGKLnpG

),,,,(),,,,( KLnpGKLnpG


• Convex in prices

• Concave in factor endowments

• The supply of good i

0,0 iii ppp GG

KLlvGG vvv ,,,0,0

0 ip yGi


• Output supply is upward sloping

• The quantity of pollution emitted

0 iipp pyGii

0 Gz

0 Gz


• The wage of factor

• Factor demand is downward sloping

0 vwvG

0 vwG vvv

KLlv ,,

Equilibrium Conditions (1)

• The economy’s budget constrainttotal expenditure = total revenue

[1]

),,,,,,( uznppppE masr

),,,,,,,( KLnppppG masr z. i

iiMt


• Net import of tradable goods [2] to [5]

Good is imported if

Good is exported if

masri ,,,ii ppi GEM

,0iM

,0iM

0t

0t


• Pollution[6]

• Land market[7]

• Inverse world demand for rural tourism

[8]

• Inverse world demand for urban tourism

[9]

zG

1Tn

),),(,( znMpMpp ssrrr

),,),(( znMMppp srrss

Welfare Analysis (1)

• Exogenous variables

are given at world market prices

• Endogenous variables

are set by world demand for rural and

urban tourism

ma ppKL ,,,

masrsr MMMMunpp ,,,,,,,,

ma pp ,

sr pp ,


• Total differentiate [1], yield

• Rearrange and using [2] to [6], yield

[10]

duEdzEdnGEdpMdpM uznnssrr )()(

duEdzEdnEdpEdpE uznsprp sr

i

iii

iinsprp dtMdMtzddzdGdnGdpGdpGsr

i

iii

ii dtMdMt

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

[11]

[11’]

dzdz

dpdn

dn

dpdM

dM

dp

dp

dpdM

dM

dpdp rr

ss

s

s

rr

r

rr

rr

r

r

r

r

rr p

M

dM

p

M

dM

dpdp r

s

s

r

s

s

r pM

dM

p

M

dM

dp

rr

r pn

dn

p

n

dn

dpr

r

r pz

dz

p

z

dz

dp

zpnpMpMpdp rrrrsrsrrrrr ˆˆˆˆ

znMMp rrssrrrr ˆˆˆˆˆ


• Similarly, total differentiate [9], yield

[12]

[12’]

• Where, for Proportional change of tourism prices

Proportional change of tourism import

zpnpMpMpdp sssssssrsrss ˆˆˆˆ

znMMp ssssrrss ˆˆˆˆˆ

iii pdpp ˆ

iii MdMM ˆ

sri ,

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

j

i

i

jij p

M

dM

dp

i

ii p

n

dn

dp

i

ii p

z

dz

dp

srji ,, ji

i

i

i

ii p

M

dM

dp


• Substitute [11] and [12] in [10] and rearrange, yield

[13]

uuEu ˆ rssrsrrrrr MMpMpMt ˆ)(

aaa MMt ˆ mmm MMt ˆ

nppnEnG ssrrnn ˆ)(

i

iii tMt ˆ

ssssrrsrss MMpMpMt ˆ)(

zppzEz zzrrz ˆ).(

Tourism Promotion Policy (1)

• 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.

• 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:

0ˆ,ˆ sr MM

0it masri ,,,

Tourism Promotion Policy (2)

[13A]

ssssrrsr MMpMp ˆ)(

uuEu ˆ rssrsrrr MMpMp ˆ)(

nppnEnG ssrrnn ˆ)(

zppzEz zzrrz ˆ).(

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 elastic demand, then

• If rural and urban tourism are substitutes, then

• If rural and urban tourism are complements, then

1,0 sr

1, sr

0, srrs

0, srrs

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 natural

park (the marginal willingness for consumer to pay to preserve natural park)

0zE

0nE

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.

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

0r

0s

0s

The Sign (4)

If natural park supply is stronger than natural park demand, then an

increase in prices of rural tourism increases natural park




0r

0s

0s

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.




0s

0r

0r

Example of Policy Implication (1)

Example 1: • Fixed agricultural land and natural park policy: • Fixed pollution emission policy: • Rural and urban tourism promotion:

Then:

• If rural and urban are complements, then there is a welfare improvement.

• If rural and urban are substitutes, then welfare effects are ambiguous.

nnTT ,zz

uuEu ˆ

,0, sr MM 0ˆ,ˆ sr MM

ssssrrsrrssrsrrr MMpMpMMpMp ˆ)(ˆ)(


Example 2: • 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:

• So there is a welfare improvement. And the optimal shadow price of natural park, and the optimal pollution tax are:

uuEu ˆ


ssssrrsrrssrsrrr MMpMpMMpMp ˆ)(ˆ)( zppzEznppnEnG zzrrzssrrnn ˆ).(ˆ)(

0 ssrrnn ppnEnG 0. zzrrz ppzEz

n

ppnGE ssrrnn

z

ppzE ssrrz


Example 3: • Fixed pollution emission policy: • Rural and urban tourism promotion: • Increase natural park:

Then:

• 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

zz

uuEu ˆ



0ˆ n

nppnEnG ssrrnn ˆ)(

ssrrnn ppnGnE

0nE

0, sr


Example 4: • Fixed agricultural land and natural park policy: • Rural and urban tourism promotion: • Decrease pollution:Then:

• If rural and urban are complements, then a decrease in pollution ambiguously improve welfare if

uuEu ˆ



0ˆ z

nnTT ,

zppzEz zzrrz ˆ).(

zzrrz ppzzE .

Other Results

• 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.

aae-875 growth, trade and the environment in developing countries anan wattanakuljarus

Documents