The New Zealand Tourism General Equilibrium Model (NZTGEM): technical documentation

Abstract

The New Zealand Tourism General Equilibrium Model (NZTGEM) is a multisectoral economic model designed specifically to analyse the long‐run impacts of tourism and related policies, and of external economic shocks affecting international inbound tourism. As inbound international tourism currently accounts for about 16 percent of New Zealand’s total exports and total tourism consumption for about 5 percent of GDP, understanding the direct and indirect economic impacts of such policies and shocks is of vital interest to both policy‐makers and industry. Conventionally, such economic analyses have relied on the use of the Tourism Satellite Account and the calculation of indirect effects using input‐output multipliers (e.g. Butcher et al., 1998). However, these methods cannot account for general equilibrium effects, which may often be important. For example, they will typically over‐estimate the macroeconomic benefits of advertising and other policies that increase international tourism demand (Dwyer et al., 2004). Other things being equal, such policies will tend to drive up the real exchange rate in the long run, decreasing the competitiveness of other exports and of domestic production that competes with imports. Other CGE models of the New Zealand economy already exist (see e.g. Lennox and van Nieuwkoop, 2009, in preparation; NZIER and Infometrics, 2009). However, NZTGEM treats tourism in much more detail than any of those models. It includes an explicit and relatively detailed description of tourist demand for eighteen international market segments and domestic leisure tourists. On the supply side, accommodation and domestic transport are modelled in detail (five types of accommodation and six of domestic transport), while the supply of international air transport to and from New Zealand is modelled specifically for each tourist market segment. Particular attention is given to demands for energy, as the model was initially developed to analyse the impacts of higher oil prices. This report describes the NZTGEM model and the key underlying dataset: a social accounting matrix extended for tourism. NZTGEM does not explicitly model the choice of inbound tourists between New Zealand and alternative destinations (which include their home country). It also does not model the response of other economies more generally to external shocks. Either or both of these may be important limitations when modelling external policies or shocks. Such limitations could be overcome in a global general equilibrium model for tourism. However, constructing such a model would be both a formidable undertaking, and would in practice, limit the detail in tourism and the wider economy in New Zealand that could be modelled. An alternative, partial but pragmatic solution is to ‘link’ NZTGEM with a suitable global model, such that some of the global model outputs become inputs of the NZTGEM model. We have demonstrated this approach by linking the Global Trade Analysis Project (GTAP) global general equilibrium model to NZTGEM to develop high oil price scenarios. The linking method and scenario are described by Lennox (2010).