Professional Documents
Culture Documents
Abstract
1). The authors are respectively Research Associate, Research Fellow and Professor at the Christel DeHaan
Tourism and Travel Research Institute, Nottingham University Business School, Jubilee Campus, Nottingham
NG8 1BB, UK. http://www.nottingham.ac.uk/ttri
1
Economic Impact of Tourism and Globalisation in Indonesia
Guntur Sugiyarto, Adam Blake and M. Thea Sinclair
INTRODUCTION
In recent years, tourism and its associated economic repercussions have taken place
makers have been concerned to decrease barriers which impede international flows of
goods, services and financial capital and to ensure flexibility of exchange rates,
interest rates and wages, with the aim of inducing markets to operate more efficiently.
occurring in conjunction with World Trade Organisation, IMF and World Bank
pressures for lower tariffs and the elimination of import quotas, and also as part of the
supposed to bring about long-term benefits by allowing countries to reap gains from
problems may occur. The first can take the form of a balance of trade deficit, as
consumers purchase increasing quantities of the cheaper imports. The second involves
a government budget deficit, as the government receives less revenue from the lower
tariffs. The third concerns the effects of trade liberalisation on the distribution of
income and levels of welfare of the local population. The issue addressed here is,
therefore, whether the growth of tourism can help to resolve these problems.
2
This issue has received little attention from macroeconomic policy-makers, who
have tended to formulate and implement policies without taking account of their
predicted effects in the context of tourism growth, even in countries whose economies
are highly dependent on tourism. Nor has the issue received much attention in the
tourism literature, which has tended to concentrate on the income and employment
impacts of tourism per se, rather than on its wider range of economic impacts,
Therefore the aim of this paper is to develop existing research in the area by
lower domestic taxation. The issue will be examined for the case of Indonesia, the
fourth largest country in the world in terms of its population of over 210 million
economy which has experienced both growth in tourism and a push towards
increasing trade liberalisation in recent years. It has a wide range of tourist attractions
and natural resources. The growing international demand for these assets, in the
domestic income and employment generation, income distribution and welfare. This
paper will examine these effects in the cases of tourism, trade and tax policies in
Indonesia.
The paper will build on previous contributions to research in the area of tourism
impact analysis, which has been undertaken using direct and indirect income changes
(Gartner and Holecek 1983), input-output models (Archer 1995; Archer and Fletcher
1996; Fletcher 1989; Johnson and Moore 1993) and, subsequently, by using a social
accounting matrix (Wagner 1997) and computable general equilibrium (CGE) models
3
(Adams and Parmenter 1995 for the Australian economy; Zhou et al. 1997 for
Hawaii; Alavalapati and Adamowicz 2000 for the environmental impacts of tourism
in Canada; Blake 2000 for Spain; and Dwyer et al. 2000 for the Australian economy).
All of these approaches have the advantage of taking account of the interrelationships
between tourism and other sectors of the economy. This paper will use a CGE model,
which has the advantages of incorporating the full range of feedback between the
different sectors of the economy, along with flexibility of prices and factor
substitutability. It is well suited for examining the effects not only of tariff reductions
but also of domestic taxation, which is a topic of growing concern in the tourism
The paper is organised as follows. The next section of the paper will be concerned
with explaining recent trends in tourism in Indonesia and outlining the types of trade
liberalisation that have been undertaken. The following section will set out the main
characterise the flows between different sectors of the economy. The computable
general equilibrium (CGE) model which is used to undertake the analysis will then be
characteristics of the economy and for quantifying the effects of alternative policies in
relation to tourism, trade liberalisation and taxation. The results from using the model
combined with decreases in domestic taxation will be compared with the results
obtained from implementing these policies in a context of tourism growth. The final
section of the paper will provide some policy implications and conclusions.
4
TOURISM AND TRADE LIBERALISATION IN THE INDONESIAN
ECONOMY
Indonesia is the largest archipelago in the world, stretching 5.110 km along the
equator from east to west and 1.888 km from north to south. It consists of five mayor
islands (Java and Bali, Sumatra, Kalimantan, Sulawesi and Irian Jaya) and about 30
smaller groups, with more than 17,000 islands in total. The chain of islands divides
the Indian and Pacific Oceans and is enriched with natural resources and diverse
cultures, offering a vast range of tourism activities. It has long been a popular tourist
destination.
Foreign tourism is an integral part of the Indonesian economy. For the decade prior
to the crisis of 1997 the tourism industry experienced strong growth, with large
increases in arrivals of foreign tourists, tourist spending and investment. The growth
of foreign visitors was more than 15% per year, contributing to an increase in foreign
currency receipts as both foreign tourists’ expenditure and their length of stay
increased. The number of foreign visitors in 1997 was 5.2 million, contributing
around 6.6 billion US$ to foreign income - about 3 % of GDP (World Bank, 2002). In
generating foreign currency receipts of over $15 billion. Tourism contributed 16% of
total job creation in 1995, and in 2007 it is estimated that 1 of every 11 new jobs will
originate from tourism (Kompas, 06/02/1999). Despite many criticisms of its adverse
effects (see, for instance, Copeland 1991; Pleumarom 1999a, 1999b), tourism in
Indonesia is expected to play a more important role in the future, especially in the face
of the declining role of oil and dependence on low wage, labour-intensive sectors. The
efforts to attract more foreign investment in the tourism industry, by allowing 100 %
5
foreign ownership, introducing a tax holiday and welcoming foreign professional
Other policies pursued by the Indonesian government have been concerned with
trade liberalisation. Decreases in the world prices of oil and other primary products,
along with the international debt crisis of 1982, resulted in deterioration of the current
introduce remedial measures. These included cuts in the number of tariffs from 25 to
11 and a reduction in the top tariff rate from 225% to 60%. Following the fall in the
price of oil in 1986, many import licenses were converted to tariffs and the licensing
During the 1990s, there were further reductions in tariffs in line with Indonesia’s
membership of AFTA (the ASEAN Free Trade Agreement) and APEC (the Asia-
Pacific Economic Co-operation) Agreement. After the Asian crisis of 1997, import
tariffs on over 150 goods were decreased, import subsidies on some goods were
eliminated and import quotas were replaced by tariffs. Thus, the policy is one of
economy. However, various problems remain. The trade balance remains highly
vulnerable to changes in world prices of oil and other natural resources and the
government has also incurred budget deficits. Employment levels, poverty and
whether a policy of further trade liberalisation combined with tourism growth can
6
THE CGE MODEL FOR TOURISM IN INDONESIA
Despite the important role of foreign tourism in the Indonesian economy, there has
been a lack of comprehensive studies of its economic impacts, especially in the form
modelling to the Indonesia economy were not concerned with tourism (Azis 1996;
Behrman et al. 1989; Devarajan et al. 1997; Roland-Holst 1992; Thorbecke et al.
1992; Robinson et al. 1997). Therefore, this is the first attempt at developing such a
model, in line with similar research on different economies (for instance Adams and
Parmenter 1995, Zhou et al. 1997 and Blake 2000). In addition to these ‘flexible
price’ CGE models, there have been some economic impact studies using ‘fixed-
1990; Fletcher 1989; Heng and Low 1990; Khan et al. 1990; West 1993; Loomis
The tourism-CGE model that will be developed for Indonesia will permit a range
development and its use in policy analysis (comparing simulation results with
characteristics of the Indonesian economy, especially with regard to the current level
of foreign tourism and the globalisation process. Second the model will facilitate
and the growth in foreign tourism. The results that are obtained from the model should
compatible with the growth of foreign tourism and the overall development of the
economy.
7
In the model, foreign tourists consume a range of exported commodities,
particularly services. This assumption is in line with the World Tourism Organisation
should be attributed to foreign tourism. Given the way that foreign tourism is
modelled, it is important to note that this study does not aim to measure the ‘actual-
input-output and SAM-based models, for instance Archer 1995; Archer and Fletcher,
domestic residents and income distribution, i.e. the general equilibrium economy-
wide effects (see Greenaway et al. 1993; Shoven and Whalley 1992; and Robinson
transactions between the domestic economy and the rest of the world. These include
factor payments coming to and going from the domestic economy, capital injections
from the rest of the world to the domestic economy (i.e. for financing the savings-
investment gap) and transfers from the rest of the world to the government and
domestic firms (i.e. as part of the open capital account policy adopted by the
Indonesian government).
The policy scenarios are modelled by classifying the process into two stages:
government policies towards more open international trade, while maintaining other
taxation and an open capital account to balance the domestic saving-investment gap
8
and the domestic current account deficit. The move towards greater trade
international trade. The lowering of tariffs is then combined with reduction in the
indirect taxation levied on the domestic economy in the far-reaching stage. The tariff
reduction, in conjunction with other measures such as domestic tax reform and the
replacement of quantitative restrictions by tariffs, has been part of the policy package
currently involved.
economy. The disaggregation level and choice of representative actors depend on the
motivation underlying its development and the availability of data, so that there is no
indicators, which concern not only the macroeconomic aggregates of the System of
National Accounts (SNA) but also the socio-economic structure and distributional
input-output accounts, which concentrate only on the production side of the economy.
Entries in a SAM can be categorised into two groups, one that reflects flows across
markets (i.e. representing product and factor markets) and the other that reflects
nominal flows or transfer payments. The transactions are presented in a square matrix,
9
with rows representing receipts and columns recording expenditures. It then follows
that every income has its corresponding expenditure, and the inflows and outflows of
economy. Nevertheless, it can provide the statistical basis for the development of
plausible models when more than a static image is required (see Pyatt and Round
1985; Drud et al. 1986; Pyatt 1988; de Melo 1988; Robinson and Roland-Holst 1988
SAM captures the circular flows of income from activities to factors and then to
institutions, which create demand for goods and services. The factor accounts receive
factor incomes from both domestic activities and the rest of the world (ROW), while
current transfers are recorded in the intersection of rows and columns of institutions
(households, firms, government and ROW). These transfers constitute the non-factor
incomes, which augment the factor incomes to yield the income of institutions. By
provides useful information and increases the versatility of the models developed
especially useful for models that focus on international trade (Robinson, 1989). The
10
Production activities are classified into 18 categories and the commonly used
assumption that one sector produces one good is adopted, so that classifications for
sectors and commodities are the same. Each production activity employs different
kinds of labour and capital. Labour is categorised into eight groups based on a
combination of sector, type of workers and job status, namely wage and non-wage.
The former refers to employees while the non-wage category includes employers,
self-employed and family workers. In the Indonesian economy context, the former
tends to be associated with higher income groups as most of the latter consists of self-
employed and unpaid family workers. On the capital side, capital is disaggregated into
five categories based on ownership and the nature of the capital. Land and other
agricultural capital, for instance, are combined into one category, while private
sources, area of residence and job status of the head of household or the highest
income earner. First, households are divided into agricultural and non-agricultural
households. The former is then split into employee landless farmers, small farmers
(land size < 0.5 hectare), medium farmers (between 0.5-1.0 hectare) and large farmers
(>1.0 hectare). For the non-farmers, the disaggregation is based on area of residence
(urban and rural), level of income and a combination of occupation and job status.
Based on these variables, the non-farmers in each area are then classified into low,
dependent and high-income groups. The dependent term refers to the households
whose highest income earner (head of the households) is not in the labour force,
relying instead on transfer incomes from relatives, friends and the government. The
household classification has been developed based on ‘real’ variables, which can
11
easily be identified for policy targeting, as commonly suggested in the development of
a SAM.
Production/Supply Side
[
INTi = A α d Di(σ i −1)/σ i + (1 − α d ) M i(σ i −1)/σ i ] σ i / ( σ i −1)
(S.1)
where A = scale parameter, αd = share parameter for domestically produced
commodities as a share of total commodities available in the domestic economy
(0<αd <1), and Di and Mi are domestically produced and imported commodities,
respectively. The elasticity of substitution between domestically produced and
imported commodities is represented by σi.
The value added was set as a Cobb Douglas function of eight different types of
labour (farmers wages and non wages, production wages and non-wages, clerical
wages and non-wages and professional wages and non-wages) and five different types
domestic, foreign, and government capital). Moreover, the wage rates of farmers and
production workers were fixed to reflect the excess supply and various government
interventions to control the wage rates of these types of workers. For other types of
labour and capital, wages and rents are flexible to clear the market. These market-
Total production was allocated to domestic demand and exports, which were then
12
manufacturing. The former is assumed to be consumed by foreign tourists, while the
exports, as most of the service exports are consumed by foreign tourists. With regard
to the CGE modelling, policy analysis should place more emphasis on the general
equilibrium effects or direction of the impacts rather than on the magnitude of the
change. For the latter, a more refined method for estimating foreign tourist
consumption should, ideally, be used prior the development of the CGE model. This
Demand Side
Total final demand in the domestic market consists of demand for consumption and
consumption, while the demand for investment is generated by the aggregated saving-
households have a fixed consumption pattern. On the other hand, the government is
addition, the government has access to foreign borrowing for balancing its budget
deficit -since 1967, the Indonesian government has continuously adopted a budget
deficit, which is financed by foreign funds. The same applies to domestic firms, so
that the two deficits have been contributing to Indonesia’s total foreign commitments.
13
In addition, there are direct transactions among institutions (i.e. the Rest of the World,
government, firms and households) in the form of direct taxes and other transfers that
fixed (in quantity), reflecting the 'investment-driven' nature of the economy. This
specification was chosen to reflect the fact that the Indonesian government (the main
economic agent) has always set its budget and other macroeconomic targets at the
beginning of the year which, in turn, affects the economic behaviour of both firms and
households. In addition to the main functional specifications for production and final
demand, there are other equations in the model to define prices (for activities,
commodities, and factors), incomes and expenditures (by institutions) and to balance
the model.
Price Equations
The domestic price of each composite commodity (Pi) can be written as a CES
function of the domestic prices of imported (PMi) and domestically produced goods
(PDi):
[
Pi = α d PDi(σ i −1) /σ i + (1 − α d ) PM i(σ i −1)/ σ i ]
σ i /( σ i −1)
(P.1)
On the import side, the adoption of the small country assumption implies that the
domestic economy is a price taker and there is unlimited supply from the ROW at the
PM i = PW i (1 + tmi ) ER (P.2)
where PWi is the world price, ER is the exchange rate and tm is the tariff rate on
imported commodities. The bar sign indicates that the variable is fixed. Assuming
14
that domestic products sold in the international market face a downward sloping
Household incomes (Yh) consist of factor incomes (wages and rent payments for its
capital used domestically and abroad, expressed by the first two parts of equation I.1
on the right hand side) and transfer incomes from the government (TGH)gh, domestic
firms (TFH)fh, other households (THH)hh and the ROW (TWH)wh. These incomes can
be written as:
Firms’ incomes (Yf) include payments for capital used in production, transfers from
other firms (TFF)ff and transfers from the ROW (TWF)wf, which is set as a residual. It
is given by:
Yf = ∑ ( PN i X i − ∑ Wk Lki ) f + (TFF ) ff + (TWF ) wf ER
i k (I.2)
Government income (Yg) can be categorised into payments for capital used in
15
Transfer payments from the Rest of the World to households are set exogenously
(as shown by a bar sign on the variables in the equations), while transfers to
government and firms are set endogenously (as residuals). This is consistent with the
behaviour of domestic firms as well as the fiscal policy of the government; both rely
on foreign sources for funding their deficits. These transfer payments consist of
direct tax payments to the government, transfers to other household groups and
savings:
E h = ( ∑ Cih ) + ( ∑ t h Yh ) g + (THH ) hh + S h
i h (E.1)
payments to the government, transfers to other firms (retained profit), transfers to the
Total saving in domestic economy consists of household savings (Sh), firms saving
(Sf), government saving (Sg) and capital injections from the Rest of the World (Sw):
S = Sh + S f + S g + S w
(S-I.1)
16
In equilibrium, total saving equals total investment, which is distributed to each
S=I
Ii = ∑δ i I and ∑δ i =1
i i (S-I.2)
accordingly given by
C i = ∑ C ih + ∑ C ig + I i
h g
(S-I.3)
where
n
PN i (∂ X i / ∂ Lki ) = Wk with LDk = ∑ Lki and LDk = LSk ¨
i =1 (L.1)
For labour in the agricultural sector and production workers, wages are fixed and the
Thus, allowing for unemployment in the agricultural sector and among production
workers. D and S in the equations above refer to demand and supply while Wk is the
Foreign Trade
17
where Ei = exports when AVEi = PWEi, PWE = supply price of domestic exports in
foreign currency, AVE = average world price of the commodity, η= the export
demand elasticity.
∑ PW i M i + (TGW ) gw + (TFW ) fw + ( RMTW )kw
i
= ∑ PWEi Ei + ( RMFW ) wk + (TWH ) wh + (TWF ) wf + (TWG ) wg
i (F.3)
The left hand side of the equation above is the ROW revenue that consists of imports,
capital flight, transfers from government and firms, and capital payment from foreign
capital used in domestic production to the ROW (remittances). On the right hand side
is the ROW total expenditure, covering exports, capital payments and transfers to
domestic households, firms and government. Since the transfers from ROW to
domestic firms and government are set as residuals, the current account deficit
equation is given by
(TWF ) wf + (TWG ) wg = ∑ PW i M i + (TGW ) gw + (TFW ) fw + ( RMTW ) kw
i
− ∑ PWEi Ei + ( RMFW ) wk + (TWH ) wh
i (F.4)
The model provided by the equations above is used to quantify the effects of trade
economy.
18
RESULTS
Two main macroeconomic policy scenarios were considered, first in isolation and
subsequently in conjunction with foreign tourism growth. The first is termed ‘partial
stemming from its increasing reliance on revenue from import tariffs. Despite the
government’s trade liberalisation efforts, especially after 1982, revenue from import
tariffs contributed 4% of total government income in 1985. This amount more than
doubled to 10% in 1993 (Sugiyarto et al. 2001). In this scenario, the government is
assumed to reduce tariffs on imports but not on exports, owing to its reliance on
revenue from the external sector, and to maintain all kinds of taxation in the domestic
economy.
pro-business and balances the ‘involuntary’ (externally determined) import tariff cuts
commodities. Another reason for considering a combination of the two policies is that
feature of tax reform policies, especially in developing countries (see Ahmad and
Stern 1991; Bird 1992; Bird and Oldman 1990; Gillis 1989; Newbery and Stern
The two scenarios are analysed by using the CGE model to estimate the effects of
19
a range of measures of inflation, external performance, welfare, household and
foreign tourist consumption. The results are given in Table 2 and are calculated as
percentage changes from the benchmark data, where the benchmark refers to the
equilibrium values of the variables prior to the simulations. In most cases, a positive
payments (BOP) deficits and trade balances should be interpreted carefully since the
Partial Globalisation
The effect of decreases in tariffs is to reduce government revenue and also to lower
the price of imported commodities in the domestic market. As the domestic economy
is a price taker, this will increase the demand for imported products, contributing to an
increase in the availability of products in the domestic economy. On the other hand,
the demand for domestically produced goods in the domestic market decreases as
their prices become relatively more expensive. This will induce producers to export
more and, in turn, to produce more, as some of the lower price imported commodities
are also used as intermediate inputs. The stronger price effects on imports result in a
worsening the trade balance as imports increase by more than exports. The increase in
demand for imported products is also higher than the reduction in domestic demand
for domestic products, so that the total supply of products in the domestic economy
on the key variables concerned, measured by the percentage changes from the
benchmark. It can be seen that the tariff reductions increase imports and foreign trade,
thus increasing the availability of products in the domestic economy (by 0.1%). This,
20
in turn, creates additional demand and stimulates production activities so that GDP
increases by 0.1%. Adverse effects of the policy take the form of a worsening of the
trade balance (imports increase by more than exports) and the government current
account deficit. The deficit deteriorates significantly due to the government’s loss of
revenue from tariffs combined with adherence to its planned expenditure. Welfare
improves, as indicated by the increases in total domestic absorption (by 0.1%) and
Foreign tourists are also better off as they can consume more with their benchmark
level of spending. Their expenditure on hotels and restaurants (the main items of
expenditure for foreign tourists) increases by 1%. The modelling procedure assumed
that there is no change in the total income (equals total spending) of foreign tourists.
The increase in consumption by foreign tourists may be higher, as the lower prices of
domestic commodities may encourage them to consume more or even attract more of
them to visit Indonesia (see Sinclair and Stabler, 1997, for discussion of the
microeconomic foundations of tourism demand and Smith, 1994, and Watson and
of studies, reviewed by Crouch (Crouch 1994a, 1994b), indicate that price is a crucial
factor for most tourists when choosing a holiday destination. Note that while total
GDP increases, some (import competing) sectors experience a decline in output and
21
Far-reaching Globalisation
The positive effects of partial globalisation discussed above are amplified in the
far-reaching globalisation scenario, when import tariff reductions are combined with
reductions in indirect taxation on domestic commodities. The reason for this can be
traced from the effects of introducing the indirect tax reductions. On the production
side, this policy will reduce the domestic prices of domestic products, making them
employment and increases GDP. The greatest expansions are in the trade, food
processing and hotel and restaurant sectors. The increases in domestic production and
employment raise household incomes, which creates more demand for goods in the
domestic market. Imports increase to meet the higher domestic demand but exports
decrease due to the fact that the domestic market becomes more profitable for
producers. Therefore the trade balance deteriorates. The policy will reduce the
government’s income from indirect taxation and worsen its deficit, as the loss of tax
revenue has made the government less able to finance its planned expenditure. The
increase.
direct effect of the combined cuts is a decrease in the domestic prices of imported and
domestic commodities. The demand coming from higher household incomes (as a
result of the cuts in indirect taxation) magnifies the increase in import demand due to
lower import prices (resulting from the first policy). Therefore, the trade balance
deteriorates further as imports increase, while the positive impact of import tariff
22
exports. The end results show that imports increase by 1.9% while exports decrease
by 0.2% and the trade balance deteriorates by 23.5%. The increasing availability of
production activities, which results in higher GDP (0.6% increase) and employment
current account deficit. Welfare improves, as can be seen from the increases in total
Foreign tourists are better off for paying lower prices for the products and services
they consume. Their real consumption on hotels and restaurants increases by 0.9%.
more than 15% per year, as was explained in the second section of the paper.
However, in the face of economic and then political crisis, this forecast may be too
optimistic. The governments of some western countries, including the USA and UK,
have warned their citizens not to visit some parts of Indonesia and the number of
foreign visitors from Australia could also be affected by the East Timor independence
process. In this section, therefore, a more reasonable 10% increase in foreign tourism
demand is simulated and is then combined with the previous two globalisation
increase in foreign tourist arrivals of less than 10% as, over the years, their spending
The increase in foreign tourism demand will create more production (GDP
increases by 0.1%) and employment (increases by 0.2%) but, at the same time, puts
pressure on domestic prices. This is clearly shown in the foreign tourist consumption.
23
The foreign tourists’ real consumption increases by 9.4% -less than the 10% increase
household real consumption increase by 0.2%. Exports increase by more than imports,
The next two simulations consider the globalisation scenarios in the context of
foreign tourism growth. The results are given in columns 5 and 6 of Table 2 and show
that growth of foreign tourism demand amplifies the positive effects of globalisation
and, at the same time, reduces its adverse effects. The levels of GDP and employment
are higher, particularly in the case of the combination of tourism growth, trade and tax
liberalisation (column 6). The trade balance is in deficit, but to a lesser extent than in
case of trade and tax liberalisation without tourism growth. The balance of payment
deficit is now in a better position, owing to the increased income from foreign
tourism.
An obvious policy that the government can undertake is, therefore, to embark on
globalisation by reducing its reliance on import tariffs and indirect taxation at a rate
that enables the revenue lost by tariff and tax reductions to equal the additional
income due to the growth of foreign tourist arrivals. The income from foreign tourism
will enable the government’s income to be maintained at the benchmark level, so that
maintain their credibility and avoid fiscal problems. The government’s ability to
24
maintain its expenditure level is also important within a context of overall deflation,
The results obtained from different policy scenarios were subjected to sensitivity
elasticity value. This parameter value quantifies the responsiveness of the demand for
analysis, which is conducted by doubling the export demand elasticity values used in
the five simulations. The increase in the elasticity values will make the demand from
the ROW more elastic, so that domestic market prices will be determined, to a greater
extent, by the export market. The results confirm that the elasticity values are
important in determining the overall results, including the magnitude and, in some
cases, the direction of the changes. For any policy changes introduced in the model,
higher export demand elasticity values will produce bigger impacts on the
8). On the other hand, the increase in foreign tourism demand will result in lower
price effects for the domestic economy, as shown by the results of third simulation
(column 9). The outcomes of these offsetting effects are shown by the last two
simulations (columns 10 and 11). In general, the sensitivity analysis shows the
robustness of the results and functional specifications employed in the models, as the
25
CONCLUSIONS
This study has shown that globalisation combined with tourism does not
necessarily have adverse effects on the domestic economy, in contrast to the past
Globalisation and foreign tourism growth can, in fact, reduce the domestic price level
and increase the amount of foreign trade and availability of products in the domestic
economy, thereby stimulating further production. The end result in the Indonesian
and household consumption increase. Foreign tourists are also better off for they can
consume more, given their spending level, and also benefit from the greater
availability of products. The trade balance and current account deficits are of concern,
indicating the need for appropriate accompanying policies, such as the promotion of
the positive findings from this study do not take account of effects that foreign
The combined effects of the growth of foreign tourism and globalisation are
beneficial, overall, as the foreign tourism growth amplifies the positive effects of
globalisation and at the same time reduces its adverse effects. The trade balance and
government accounts are in a better position, owing to the additional receipts from
tourism. The ongoing growth of foreign tourism also reduces the government’s
on import tariffs and indirect taxation while, at the same time, maintaining the level of
income necessary to finance its expenditure. Tourism growth would, therefore, enable
26
to finance its expenditure without imposing higher taxes on the Indonesian
population.
27
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Figure 1. Schematic Representation of Production System
32
Table 1: Schematic Representation of the Indonesian SAM
EXPENDITURE
RECEIPTS 1.Factor 2.Institutions 3.Activity 4.TTM 5.Dom.Com 6.Imp.Com 7.Capital 8.Ind. Tax 9. ROW
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
1.Factors
a).Labour Wages
b).Capital Profits/Rents Remittances
2.Institutions Factor Transfers Transfers
a).Households Income
b).Firm Factor Transfers Transfers
Income
c).Government Factor Direct Tax Ind. Tax Transfers
Income Revenue
3.Activities Transfer Production
4.Trade and Mark-up Mark-up
Transport Margin
(TTM)
5.Domestic Consumption Intermediate Investment Exports
Commodity
6.Imported Consumption Investment
Commodity
7.Capital Savings
8.Net Indirect Tax Tax Tax
9.Rest Of Remittances Transfers Imports Capital
theWorld (ROW) Outflows
33
Table 2: Effects of Globalisation and Foreign Tourism Growth in the Indonesian Economy
(Percentage Change from the Benchmark)
Scenarios of Globalisation and Foreign Tourism Growth Sensitivity Analysis of Doubling the Values Of Export
Variables Concerned Demand Elasticities
PG FG DI PG & DI FG & DI PG FG DI PG & DI FG & DI
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
A. Macroeconomic Aggregates
1. GDP 0.05 0.64 0.06 0.11 0.70 0.11 0.69 0.03 0.14 0.72
a. Agriculture -0.06 1.54 0.17 0.11 1.71 0.02 1.65 0.12 0.14 1.77
b. Mining 0.00 -0.74 -0.14 -0.14 -0.88 -0.06 -0.81 -0.11 -0.17 -0.91
c. Manufacturing -0.04 0.33 -0.05 -0.09 0.28 0.08 0.41 -0.09 0.00 0.33
d. Services 0.04 0.46 0.14 0.18 0.60 0.05 0.45 0.12 0.17 0.56
-Hotel 0.04 0.87 2.81 2.90 3.60 -0.02 1.21 2.73 2.70 3.74
-Restaurant 0.00 1.47 0.53 0.54 1.98 0.04 1.58 0.50 0.53 2.04
2. Employment -0.01 1.34 0.16 0.15 1.49 0.11 1.42 0.10 0.21 1.51
B. External Conditions
1. Foreign Trade
a. Real Export 0.64 -0.18 0.24 0.88 0.05 0.88 -0.10 0.14 1.02 0.03
b. Real Import 0.91 1.86 0.20 1.11 2.06 1.09 1.87 0.12 1.21 1.99
c. Trade Balance -2.43 -23.49 0.70 -1.75 -22.90 -1.56 -22.60 0.36 -1.23 -22.33
2. BOP Deficits
a. Government 349.15 1195.34 30.41 380.35 1227.58 357.45 1189.06 24.74 382.20 1213.55
b. Firm -14.65 -42.91 -3.58 -18.28 -46.47 -16.48 -43.32 -2.63 -19.10 -45.79
c. Total 0.53 8.76 -2.16 -1.64 6.70 -0.88 8.10 -1.49 -2.36 6.76
C. Welfare and Distribution
1.Domestic Absorption 0.09 1.06 0.05 0.14 1.11 0.14 1.09 0.03 0.17 1.12
2. Household Real Consumption 0.16 1.97 0.15 0.32 2.12 0.25 2.01 0.11 0.36 2.11
a. Farmers 0.15 2.15 0.13 0.28 2.28 0.22 2.24 0.09 0.31 2.32
b. Rural Households 0.14 1.92 0.14 0.28 2.05 0.23 1.97 0.09 0.32 2.06
c. Urban Households 0.19 1.83 0.18 0.38 2.01 0.29 1.83 0.13 0.43 1.95
3. Foreign Tourist Consumption
a. Hotel and Restaurant 0.10 0.92 9.37 9.65 10.08 -0.04 2.20 9.09 9.03 10.67
b. All other services 0.13 -0.28 9.37 9.67 8.80 0.00 -0.26 9.09 9.09 8.08
Note: PG and FG are Partial and Far-reaching Globalisation, while DI is Foreign Tourist Demand Increase.
34