Elsevier

Tourism Management

Volume 27, Issue 5, October 2006, Pages 913-924
Tourism Management

A general equilibrium analysis of climate change impacts on tourism

https://doi.org/10.1016/j.tourman.2005.05.002Get rights and content

Abstract

This paper studies the economic implications of climate-change-induced variations in tourism demand, using a world CGE model. The model is first re-calibrated at some future years, obtaining hypothetical benchmark equilibria, which are subsequently perturbed by shocks, simulating the effects of climate change. We portray the impact of climate change on tourism by means of two sets of shocks, occurring simultaneously. The first set of shocks translate predicted variations in tourist flows into changes of consumption preferences for domestically produced goods. The second set reallocate income across world regions, simulating the effect of higher or lower tourists’ expenditure. Our analysis highlights that variations in tourist flows will affect regional economies in a way that is directly related to the sign and magnitude of flow variations. At a global scale, climate change will ultimately lead to a welfare loss, unevenly spread across regions.

Introduction

Climate plays an obvious role in tourist destination choice. The majority of tourists spend their holidays lazing in the sun, a sun that should be pleasant but not too hot. The Mediterranean particularly profits from this, being close to the main holiday-makers of Europe's wealthy, but cool and rainy Northwest. Climate change would alter that, as tourists are particularly footloose. The currently popular holiday destinations may become too hot, and destinations that are currently too cool would see a surge in their popularity. This could have a major impact on some economies. About 10% of world GDP is now spent on recreation and tourism. Climate change will probably not affect the amount of money spent but rather where it is spent. Revenues from tourism are a major factor in some economies, however, and seeing only part of that money move elsewhere may be problematic. This paper studies the economic implications of climate-change-induced changes in tourism demand.

The literature on tourist destination choice used to be largely silent on climate (Crouch, 1995; Witt and Witt, 1995), perhaps because climate was deemed to be obvious or beyond control of managers and perhaps because climate was seen to be constant. Recently, however, an increasing number of studies have looked at the effects of climate change on the behaviour of tourists from a particular origin or on the attractiveness of a particular holiday destination. Few of these studies look at the simultaneous changes of supply and demand at many locations. In fact, few of these studies look at all at economic aspects, the main exception being Maddison (2001), Lise and Tol (2002) and Hamilton (2003) who estimate the changes in demand of British, Dutch and German tourists, respectively. Hamilton et al. (2004) do look at the supply and demand for all countries, but their model is restricted to tourist numbers.

This paper tries to fill this gap in the literature. We study climate-change-induced variations in the demand for and the supply of tourism services. We go beyond a partial equilibrium analysis of the tourism market, however, and also add the general equilibrium effects. In this manner, we get a comprehensive estimate of the redistribution of income as a result of the expected redistribution of tourists due to climate change.

The paper is structured as follows. Section 2 presents our estimates of changes in international tourist flows. Section 3 outlines the general equilibrium model used in this analysis. Section 4 illustrates how tourism is included in this model. Section 5 discusses the basic tourism data. Section 6 shows the results of our climate change supposition and Section 7 offers a conclusion. An Appendix A describes the general equilibrium model structure and its main assumptions.

Section snippets

Estimates of changes in international tourist flows

We take our estimates of changes in international tourist flows from Hamilton et al. (2004). Theirs is an econometrically estimated simulation model of bilateral flows of tourists between 207 countries; the econometrics is reported in Maddison (2001), Lise and Tol (2002) and Hamilton (2003). The model yields the number of international tourists generated by each country. This depends on population, income per capita and climate. Other factors may be important too, of course, but are supposed to

Assessing the general equilibrium effects: model structure and simulation strategy

To assess the systemic, general equilibrium effects of tourism impacts, induced by global warming, we made an unconventional use of a multi-country world computable general equilibrium (CGE) model: the GTAP model (Hertel, 1996), in the version modified by Burniaux and Truong (2002), and subsequently extended by ourselves.

A CGE model provides an internally consistent and detailed description of an economic system, highlighting trade linkages between industries, regions and markets. CGE models

Impact modelling in the CGE framework

To model the tourism-related impact of climate change, we ran a set of simulation scenarios, by shocking specific variables in the model. More precisely, we portray the impact of climate change on tourism by means of changes in the structure of final consumption (the affected variable is the value of private domestic purchases, VDP) coupled with changes in international income transfers. The procedure we follow is conditioned by the fact that the GTAP database is centred on the concept of Gross

Baseline estimates for domestic tourism volumes

In order to compute the estimated variation in the total number of tourists, some data on the number of domestic tourists in the baseline (NTr0) is necessary. This parameter is included in RTr0, in the denominator of Eq. (1).

For most countries, the volume of domestic tourist flows is derived using 1997 data of the Euromonitor (2002) database. For some other countries, we rely upon alternative sources, such as national statistical offices, other governmental institutions or trade associations.

Simulation results

In our simulations, economic impacts get more substantial with time, because of rising temperature levels. Time also plays a role in the distribution of costs and benefits, bringing about a few important qualitative changes. For economy of space, we shall focus our discussion on results for the year 2050. Results for 2010 and 2030 are reported only when qualitatively different from those of 2050.

Conclusion

Climate change will affect many aspects of our lives, and holiday habits are among the ones most sensitive to variations in climate. This implies that a very important service sector, the tourism industry, will be directly affected, and this may have important economic consequences.

This paper is a first attempt at evaluating these impacts within a general equilibrium framework, and establishes two things. Firstly, we show that tourism has impacts throughout the economy. This implies that

Acknowledgements

We had useful discussions about the topics of this paper with Carlo Carraro, Sam Fankhauser, Jacqueline Hamilton, Marzio Galeotti, Francesco Bosello, Marco Lazzarin, Andrea Galvan, Claudia Kemfert, Hans Kremers, Hom Pant, Katrin Rehdanz, Kerstin Ronneberger and Guy Jakeman. The Volkswagen Foundation through the ECOBICE project, the EU DG Research Environment and Climate Programme through the DINAS-Coast project (EVK2-2000-22024), the US National Science Foundation through the Center for

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