Pandemic, tourism, and the economy: a tourism-revenue target zone approach

ABSTRACT

The COVID-19 pandemic has negatively affected the tourist markets of many countries. This study develops a small, open macro model of tourism to analyze the price and revenue effects of establishing tourism target zones on tourism revenue in response to industry disturbances resulting from the pandemic. Such target zones improve tourism revenue and stabilize the economy by stabilizing tourism goods prices and exchange rates when domestic or foreign demand is strong and regardless of whether national borders are open. A tourism goods price subsidy can be employed to revitalize the tourism industry and improve tourism revenue after the pandemic.

KEYWORDS:

• Pandemic
• tourism revenue target zone
• tourism price
• exchange rate

Acknowledgement

The research underlying this paper is supported by the National Science and Technology Council (NSTC), Taiwan (Project No. MOST 110-2410-H-035-053 for Shih-Wen Hu and NSTC 111-2410-H-035-001 for Chi-Chur Chao). Any errors or shortcomings are the authors’ own responsibility.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The Taiwanese Ministry of Communications implemented measures related to transportation and tourism pandemic prevention in three stages. The measures involved pandemic prevention in tourism (May 27 to July 31, 2020), ensuring worry-free travel (August 1 to October 31, 2020), and international inbound tourism (October 1 to December 31, 2020). Transportation Press Release – Ministry of Transportation and Communications of the Republic of China (motc.gov.tw).

2. Source: https://admin.taiwan.net.tw/ActivitiesDetailC001100.aspx?Cond=6aabb42b-94ec-40ab-9748-52d9b2193e91.

3. Source: https://www.travelvoice.jp/20200407–145894/print.

4. Source: https://www.travelvoice.jp/20200710–146622.

5. Additional support measures included providing licensed travel agents and drivers with cash subsidies. Government provides additional support to tourism industry (info.gov.hk).

6. Source: Tourism and Hospitality Recovery Program (THRP) - Canada.cal.

7. The equilibrium condition for the traded-goods market can be expressed as $\gamma (p^n-bs-p^t)+\xi (m-p^t)+\eta (e+p^{t\ast }-p^t)=-\delta (p^n-p^t)$ where $\gamma$ and $\delta$ denote the degrees of the price effect on the demand side and the supply side of the traded-goods market, respectively; $\xi$ represents the influence of the wealth effect on the traded-goods market; and $\eta$ indicates the substitution elasticity between the domestic and foreign traded goods. Under the assumption that domestic and foreign traded goods are perfect substitutes, the value of $\eta$ is indefinite. Thus, Equation 1 is obtained.

8. In the model, $g$ is a fiscal policy, such as ‘Visit Malaysia Year 2020’ (source: Tourism Malaysia Corporate Site), developed to promote international tourist arrivals. After referencing Fang and Lai (2002), and Chen et al. (2013, 2014), we did not consider the financing of tourism promotion and price subsidies for tourism goods.

9. The equilibrium condition of the foreign exchange market under the floating exchange rate system is $c\tau \alpha +\eta \left(e+p^{t\ast }-p^t\right)+k\left[i-i^{\ast }-\frac{E\left(de\right)}{dt}\right]=0$; that is, the current account balance plus the capital account balance is equal to zero. Because capital is completely mobile ($k\to \mathrm{\infty }$), the equilibrium condition of the foreign exchange market degenerates $i=i^{\ast }+\frac{E\left(de\right)}{dt}$$i=i\ast +\frac{E\left(de\right)}{dt}$ to which is Equation 5(5) $i=i^{\ast }+\frac{E(de)}{dt}$(5) . The parameter represents the degree of foreign demand for domestic tourism goods.

10. If the magnitude of the rise and fall of the disturbance is not the same, the conclusion is unaffected (Lai and Chang 2001). Moreover, Lai, Fang, and Chang (2008) demonstrate that the descriptions and the results of mathematical methods in which stochastic differential equations are employed can be intuitively explained using a graphical approach.

11. ${\left.\frac{\mathrm{\partial }{p}^n}{\mathrm{\partial }e}\right|}_{TN}-{\left.\frac{\mathrm{\partial }{p}^n}{\mathrm{\partial }e}\right|}_{TR}=\frac{\left(1+\chi \right)\tau \omega +\theta +x-\left(1+\chi \right)\sigma }{\left(\theta +\chi )(1+\chi \right)}$. To simplify the analysis, we analyze a case in which the $TN$line is steeper than the $TR$line [i.e. $\left(1+\chi \right)\sigma <\left(1+\chi \right)\tau \omega +\theta +x$], when $\sigma <\tau \omega +\theta +\chi$. A case in which the$TN$line is flatter than the $TR$line is available.

12. ${\left.\frac{\mathrm{\partial }{p}^n}{\mathrm{\partial }e}\right|}_{TN}-{\left.\frac{\mathrm{\partial }{p}^n}{\mathrm{\partial }e}\right|}_{BP}=\frac{\beta \tau \omega +\theta +\chi -\beta \sigma }{\beta \left(\theta +\chi \right)}$. Because the proportion of tourism output to gross domestic product in most countries is low, the parameter $\beta$is small. To simplify our analysis, we analyze a scenario in which the $TN$ line is flatter than the $BP$ line (i.e. $\beta \sigma <\beta \tau \omega +\theta +x$), when $\sigma >\tau \omega +\theta +\chi$.