Chukyo University Institute of Economics
Discussion Paper Series
July 2022

No. 2203

Agritourism, Unemployment, and Economic Welfare in a
Developed Country
Kenji Kondoh and Hiroshi Kurata

Agritourism, Unemployment, and Economic Welfare in a
Developed Country
Kenji Kondoh* and Hiroshi Kurata§
Abstract

This study examines the effects of policy changes and improvements in the agritourism sector ina developed country with free trade and capital movement. The country comprises two regions:an urban area where the manufacturing sector is located, and a rural area where both theagricultural and agritourism sectors are located. We consider free labor mobility between the twoareas and the structural, frictional unemployment in the urban area. We demonstrate that if
agritourism is environmentally friendly and the domestic preference for manufactured goods is
sufficiently large, labor inflow to this country, a reduction in the ratio of agricultural goods totouristic services in the agritourism sector, an enhancement of labor productivity in the tourism
sector, and technological improvements related to environmental protection in either the
manufacturing or agritourism sector will enhance the natural environment, the rural wage rate,and domestic welfare, and will reduce the urban unemployment rate and urban–rural wage gap.

Keywords: Agritourism, Urban–rural migration, Unemployment
JEL Code: O13, O18, Q56* School of Economics, Chukyo University
Email: kkondo@mecl.chukyo-u.ac.jp§

Faculty of Economics, Tohoku Gakuin University

1Agritourism, Unemployment, and Economic Welfare in a
Developed Country
1. Introduction
Agritourism is a new type of tourism that involves both the agricultural and tourism
industries. Typically, it involves an agricultural environment that attracts visitors for agriculturaloperations, recreation, entertainment, and/or educational experiences. 1 Agritourism is widelybelieved to be beneficial to producers and communities. Farmers take advantage of theopportunities available to generate additional income and obtain a direct marketing channel toconsumers, whereas the tourism industry benefits from the increase in the number of visitors andtheir length of stay. Unlike ordinary tourism, which sometimes harms the natural environment,
agritourism may offer an environmentally friendly atmosphere where visitors can enjoy
experiences such as planting, harvesting, and feeding. Moreover, agritourism business may
contribute to expanding job opportunities in rural areas, and the enhanced national income will
improve domestic welfare.
Whereas agritourism is widespread in Asian developing countries such as Thailand, thePhilippines, and Cambodia, it is still mainly witnessed in developed countries, such as the UnitedStates and EU countries. There are several important differences in the status of agritourism andeconomic structures between developed and developing countries.
First, in developing countries, the agritourism sector mainly targets foreign visitors from richcountries. The services in this sector are not intended for poor domestic residents. For example,
Thailand offers foreign visitors several agritourism trips, which include visits to fruit farms andfarmers’ houses, harvesting and cooking experiences, and the opportunity to enjoy traditional
foods served by English-speaking local guides.2 However, in developed countries, agritourism isfocused primarily on domestic tourists. This implies that the total output of agritourism directlyreflects the welfare of domestic residents who consume the services in this sector.

1

For example, the National Agricultural Law Center (https://nationalaglawcenter.org/) reports that

pumpkin picking patches, corn mazes, U-Pick operations, petting and feeding zoos, hayrides, cut-yourown Christmas tree farms, dude ranches, demonstration farms, agricultural museums, living history
farms, on-farm farmers’ markets, winery tours and wine tastings, rural bed and breakfasts, and garden
tours are conducted in the United States.
2

Responsible Thailand (www.responsiblethailand.co.uk/).

2

Second, as developing countries with low capital–labor ratios tend to have low wage levels,international labor outflow will occur if permitted. The remittance from emigrants plays animportant role in the economic development of developing countries. 3 Thus, governments indeveloping countries seem to permit such international labor outflow in most cases. Additionally,in developing countries, as Harris and Todaro (1970) formalized, there exist urban–rural
migration and urban unemployment caused by fixed high wage rates in urban areas. Additionally,
domestic capital in developing countries is quite scarce. Thus, governments in developing
countries often earnestly try to introduce foreign direct investment. It should be noted that in someleast developed countries, almost all of the capital is owned by foreign investors; thus, capitalincome does not contribute to the national income of the developing country.
In this study, we focused on the economies of developed countries with agritourism sectors.
As the capital/labor ratio is relatively high, developed countries export capital under free capital
mobility. All of the capital income of the manufacturing sector in developed countries contributes
to the national income of the respective country. The labor market is also different. It is naturaland realistic to consider that the urban wage rate is flexible, but structural frictional
unemployment exists in urban areas, which causes a wage gap between urban and rural areas. In
rural areas, similar to in developing countries, we can reasonably assume full employment.
This study aims to examine the effects of different policies in a developed country with anagritourism sector compared with cases in a developing country studied by Kondoh and Kurata(2021). We investigate the effects of an exogenous change in the labor supply caused byinternational immigration. In addition, we consider the effects of changes in the agritourism
industry, focusing on an increase in labor productivity, a shift to agricultural-goods-intensive
tourism, and more environmentally friendly agritourism.
In this study, similar to Kondoh and Kurata (2021), we analyze the economy, which consistsof two regions: an urban area where the manufacturing sector is located and which has a certain
level of structural frictional unemployment, and a rural area where both the agricultural andagritourism sectors are located. Labor is a necessary input for every sector, whereas domestic
capital investment is a specific factor of production for the manufacturing of goods. The
agritourism sector is supposed to supply a combined good whose primary components are
touristic services (also supplied by labor input) and agricultural goods. The productivity ofagricultural goods depends on the stock level of environmental capital, which can be damaged by
the manufacturing sector but helped by agritourism. As our study focuses on the economy of a3

Meyer and Shera (2017) empirically tested the impact of remittances on economic growth, using thedata of six high-remittance-receiving countries. They showed significant relationships between remittanceand economic growth in these countries.

3

developed country, different from Kondoh and Kurata (2021), we assume the existence of 1)
domestic capital owners, 2) free capital mobility, 3) free trade, and 4) domestic consumption of
all three types of goods: manufacturing, agricultural, and agritourism.
The main results of our study are as follows. If agritourism is environmentally friendly andthe domestic preference for manufactured goods is sufficiently large, labor inflow to this country,
a reduction in the ratio of agricultural goods to touristic services in the agritourism sector, anenhancement of labor productivity in the tourism sector, and technological improvements related
to environmental protection in either the manufacturing or agritourism sector will enhance thenatural environment, the rural wage rate, and domestic welfare, and will reduce the urban
unemployment rate and urban–rural wage gap.
On several points, the above conclusions differ from those of Kondoh and Kurata (2021),
who studied the case of a developing country. As opposed to our intuitions, this study shows thatlabor inflow has positive effects on the wage rate of workers in the rural area. This is because
immigration causes no change in the magnitude of the manufacturing sector and due to the
reduced international trade caused by increased domestic demand on manufactured goods,
employment in the rural area will increase in order to compensate for decreased import ofagricultural goods. The expansion of environmentally friendly agritourism helps reduce pollution
and causes positive effects on the stock of natural environment which directly connected with thewage rate in the rural area just equal to the productivity of the agricultural sector. The effects of
the improvement in the agritourism sector are similar to those found by Kondoh and Kurata (2021),
but both the urban wage rate and unemployment rate are endogenously determined in this study.
Before proceeding, we discuss the relationship between this study and existing studies. We
can categorize studies on agritourism into three major groups. The first group, which includes
Galuzzo (2018) and McGehee and Kim (2004), defines the properties of agritourism by focusing
on the incentives of the supply side of starting a business. The second group, which includes
Carpio et al. (2008), Santeramo and Barbieri (2017), and Sidali et al. (2019), investigates the
incentives of the demand side, such as tourists’ preferences and properties. Finally, the third group,
which includes Jeczmik et al. (2015), Maude and van Rest (1985), Schilling et al. (2012), andKondoh and Kurata (2021), studies the economic effects of agritourism and considers several
specific aspects such as natural environmental protection, the income growth of the rural
population, and labor mobility. It is important to note that most of the studies in this group are
empirical and include case studies in countries such as the United States, the United Kingdom,
and Italy, while only a few theoretical studies have been carried out.
Regarding the environmental protection aspects, several theoretical studies have focused on
the economic effects of tourism promotion. Following the pioneering study by Copeland (1991),
most recent studies, including those of Beladi et al. (2009), Chao and Sgro (2008), Chao et al.
4(2004, 2008, 2010), Hazari and Hoshmand (2011), and Yanase (2017), have used a trade model
to investigate the agritourism industry. Furukawa et al. (2019) focus on a rural area in a developed
country and study the effects of the inflow of capital, labor, and tourists from outside the area.
Yabuuchi (2013, 2015) studies the economic effects of tourism promotion in developing countries
by applying an extended urban–rural migration model by Harris and Todaro (1970). These studies
investigate the combined effects of tourism promotion and environmental protection prompted bya pollution tax, considering production and consumption externalities.
We need to state that theoretical studies focusing on the effects of economic policies underthe existence of an agritourism sector are not sufficient. The sole example is Kondoh and Kurata(2021), who only focus on a developing country. This industry contributes to an increase inemployment in the agricultural sector, inducing the production of agricultural goods to beindirectly consumed by tourists. Different from Kondoh and Kurata’s (2021) study in which there
is no domestic capital owner and no domestic consumption of agritourism, both agritourism andagricultural goods are alternatively consumed by domestic residents, capital owners, and workers.
Kondoh and Kurata (2021) consider only environmentally friendly agritourism in which actions
such as planting trees or cleaning beaches contribute to the improvement of the naturalenvironment, which directly determines the productivity of agriculture (Copeland and Taylor,1999). However, in this study, we consider more general cases in which agritourism may or may
not be environmentally friendly. Hence, our study highlights the characteristics of the economy
of a developed country and, by combining the literature on agritourism and environmental
protection, provides new insights into policies in developed countries.
The remainder of this study is organized as follows. In Section 2, we present our model.
Section 3 is dedicated to the analysis, and Section 4 presents our concluding remarks.

2. The Model
The basic model of this study is similar to that of Kondoh and Kurata (2021). We extend thebasic model of Copeland and Taylor (1999) and assume the existence of a small, developed
country with three industries:

A smokestack manufacturing industry located in an urban area that generates pollution.

An environmentally sensitive agricultural industry located in a rural area that suffers from
pollution.

An agritourism industry located in a rural area that is either environmentally friendly or
environmentally unfriendly.

5

The primary factors of production are labor, capital, and environmental stock. Capital is a
specific factor in the production of manufacturing goods, whereas the level of environmental
stock regulates the productivity of agricultural goods. We assume that the agritourism industry
manages to supply touristic services combining agricultural goods (e.g., local foods) and labor
input (e.g., accommodation services). Additionally, we consider two possible types of agritourism.
The first is environmentally friendly tourism, which contributes to environmental protection, as
in Kondoh and Kurata (2021). Let us call this type of agritourism “ecological agritourism.” Thesecond type is environmentally unfriendly tourism, which is similar to traditional and ordinary
tourism that could harm the natural environment. Let us call this type of agritourism “exploitative
agritourism.”4
The production functions of the manufacturing, agricultural, and agritourism industries inthis country are defined as follows:

M  F ( K  K , LM ),(1)

A  ELA ,(2)

S   LS ,

(3)

̅, 𝐾
̃ , and 𝐿𝑀 are, respectively, the output, domestic
where 𝐸 is environmental stock; 𝑀 , 𝐾
capital input, foreign capital input, and labor input of the manufacturing industry; 𝐴 and 𝐿𝐴 are
the output and labor input of the agricultural industry; 𝑆 and 𝐿𝑆 are the output and labor inputof the agritourism services; and 𝛽 is the parameter that reflects the productivity of theagritourism industry.5 In this study, we consider the case of a capital-abundant developed country
̃ is negative.
that exports capital to the rest of the world. Thus, in this study, the sign of 𝐾
One unit of agritourism is supplied to domestic tourists as a combination of one unit ofservice and 𝑞 units of agricultural goods. Thus, the total output of agritourism can be expressed
as follows:

For example, we can imagine a rural tour for people from developed countries with accommodation, local
foods, and experiences such as planting fruit trees or voluntary beach cleaning activities.
5
We assume the ordinary properties of the production function of the manufacturing industry; that is,4

FL  0, FK  0, FLL  0, FKK  0, FLK  0 and FLL FKK  FLK 2  0 .
6

X  S   LS  q 1 AT ,(4)

where 𝑋 denotes the output of agritourism, and 𝐴 𝑇 stands for the total amount of agricultural
goods supplied to domestic tourists.
The production activity in the manufacturing industry causes pollution, which harms thenatural environment. We assume that the level of environmental stock is a decreasing function of
the amount of pollution emitted by the manufacturing industry. Moreover, we consider the
positive effects on the natural environment caused by agritourism activities. Therefore, the net
stock of environmental capital is

E  E  1M  2 X ,(5)where 𝐸̄ is the natural stock level of environmental capital before damages and 𝜆1 and 𝜆2 are,respectively, parameters that reflect the magnitude of effects on the natural environment causedby one unit of manufacturing and agritourism output. As manufacturing causes pollution, which
damages the natural environment, we reasonably assume 𝜆1 has a positive sign. Conversely, thesign of 𝜆2 depends on the property of tourism. If the agritourism is ecological (exploitative),
expanding agritourism causes positive (negative) effects on the natural environment; thus, 𝜆2 >0 (𝜆2 < 0), respectively.
The wage rate of the manufacturing industry located in the urban area is w * , which isendogenously determined by perfect competition and equal to the value of marginal products oflabor. We reasonably assume that there exists structural, frictional unemployment in the urban
area, which implies that some of the urban workers are not employed during the job-seeking
period. Let LU denote the number of unemployed workers, and  denote the ratio of
unemployed to employed workers in the urban area, LU / LM . Similar to the Harris–Todaro
framework, urban workers can obtain w * by the manufacturing industry if employed, but they
do not receive wages if not employed. The possibility of a worker being employed or not in every
period depends only on a random probability. However, as we assume competitive wage rates in
the agricultural and agritourism industries, the wage rates 𝑤 in both sectors are equal. In theequilibrium after domestic labor mobility between the two regions, we havew  w*

LM,
LM  LU
7

(6)

and

w*  (1   )w .

(7)

Regarding the industry structure, as we assume perfect competition with free entry in boththe manufacturing and agricultural industries, the total profits in the manufacturing andagricultural industries, 𝜋𝑀 and 𝜋𝐴 , can be expressed as follows, respectively, M  pM M  w * LM  r ( K  K ) ,(8) A  A  wLA ,(9)where the agricultural good is the numeraire, pM denotes the price of the manufactured good,and r denotes the rental price of foreign capital. We assume this small country confronts free
trade and free international capital mobility, and thus both pM and r are exogenously given.
Under the assumption that both goods are produced, profit maximization conditions in the
manufacturing and agricultural industries yield

 M
 pM FL ( K  K , LM )  (1   ) w  0 ,
LM

(10)

 M
 pM FK ( K  K , LM )  r  0 ,( K  K )

(11)

 A
 E w  0.
LA

(12)

Condition (12) shows that 𝑤 depends on the level of net stock of the environment.6 The full
employment condition isLM  LA  LS  LU  L  L ,6

In this model, labor in the service sector receives the competitive wage rate 𝑤 determined in the

agricultural sector because agricultural farms undertake agritourism.

8

(13)

where L and L denote the domestic labor endowment and the total amount of immigrants,
respectively. We assume that this developed country is capital-abundant; thus, L has a positivesign.
We also assume perfect competition with free entry in the agritourism industry. Thus, theprice of one unit of agritourism goods should equal its marginal cost, pAT   1w  q . Here, anagritourism good is assumed to be non-tradable because it needs labor input such as service
activities. Therefore, under free trade, this capital-abundant developed country exports
manufacturing goods and imports agricultural goods. The trade balance condition ispM [ F ( K  K , LM )  DM ]  q LS  DA  wLA ,(14)

where 𝐷𝑀 and 𝐷𝐴 are the domestic residents’ (including immigrants) aggregate consumption
levels of manufactured and agricultural goods, respectively.
Unlike in the case of a developing country studied by Kondoh and Kurata (2021), all three
goods (i.e., manufacturing, agricultural, and agritourism goods) are consumed by domestic
residents. Thus, on the demand side, we specify the following social utility function of domestic
residents:

U  ( DM ) [( DA ) S1 ]1 , 0    1, 0    1,

(15)

where  and  are the parameters that reflect the preferences for manufactured goods andagricultural goods, respectively.7 As each firm obtains zero profit, the GDP of this country isequal to the capital and labor income, rK  w( L  L ) . Therefore, the demand for each good is
obtained by solving the utility maximization problem, subject to the following budget constraint:

DA  pM DM  (w   q) LS  w( L  L)  rK .

(16)

 LS (w   q)  (1   ) DA ,(17)

Hence, we have7

Let    (1   ) . Then, we can rewrite (15) as U  ( DM ) ( DA ) S 1  , 0    1, 0    1 .

9 DA   (1   ) pM DM .

(18)

From (5) and (12), we can assert thatE  1F ( K  K , LM )  2  LS  w2 ,(19)

and from (13), (14), and (16) to (18), we can obtain the following two conditions: (1   )(1   )[w( L  L)  rK ]   (w   q) LS  0 ,(20)

pM F ( K  K , LM )  rK  w(1   ) LM  0 .

(21)Thus, we have five equations, (10), (11), and (19) to (21), which determine five endogenous
variables.

K , LM , LS , w, and 

are in equilibrium given the exogenous variables

E , L , L,  ,  ,  , q, K , 1 , and 𝜆2 .

3. Comparative Statics
Totally differentiating (10), (11), (19), (21), and (20), we have10(1   ) w   dK 0
pM FLK00   dLS 
2 
1 FL2w
0   dLM 00(1   ) LM  wLM   dw  ( w   q)0
0   d 
0
 0 
 0 


0
 0 








 0 
0
 0 
 0 


0


 dL   2 LS  d    0  dq   F  d 1     LS  d 2 .

0






 


0
 0 
 0 


0
 0 
  qLS  LS   (1   )(1   ) w
 0 
 0 

 pM FLKp F
 M KK 1 FK
 pM FK 0

0

pM FLL(22)

where    [(1   )(1   )( L  L)  LS ] . The determinant of the matrix of (22) is  pM 2 w[ LM ( FLL FKK  FLK 2 )  FK FLK ][2   2w (w   q)](23)

and the sign of  is sufficiently negative if agritourism is ecological (2  0) and thedomestic preference for the manufactured good,  , is sufficiently large to satisfy   0 . Thus,in this study, we only consider the case of ecological agritourism.

3.1. Policy Changes in Developed Countries
We now discuss the effects of specific policy changes in developed countries. Developed
countries such as Italy and Japan, attempting to enhance domestic economic welfare and reduce
the unemployment rate in urban areas, have introduced the following economic policies: 1) A
policy aimed at encouraging labor inflow, which may contribute to enhancing the labor supply
surplus and 2) a policy to restrict emission of pollution from the manufacturing sector, which may
expand productivity in the agricultural industry in rural areas. We examine the effects of thesepolicies using comparative statics.

3.1.1 Labor Inflow
First, let us consider an increase in labor endowment due to emigration. From (22), simple
calculations yield

11

dK
 0,
dL

(24)

dw
1
  2 w2 pM 2 (1   )(1   )[ LM ( FKK FLL  FLK 2 )  FLK FK ]  0 ,
dL


(25)

dLM
0,
dL

(26)

d 1
 2 pM 2 (1   )(1   ) w(1   ) LM [( FKK FLL  FLK 2 )  FLK FK ]  0
dL 

(27)

dLS
1
  2 (1   )(1   ) w3 pM 2 [ LM ( FKK FLL  FLK 2 )  FLK FK ]  0,
dL


(28)

dw *
dw
d
 (1   )
w
 0.
dL
dL
dL

(29)

We can conclude that labor inflow due to migration will reduce the labor and capital input
in the manufacturing sector. This result implies that the total output and export of manufactured
goods will decrease. However, after immigration, the agriculture sector will expand, and,surprisingly, both urban and rural wage rates will increase. Regarding the effect on theenvironmental capital stock, we obtain the following relationship from (12):sgn dw  sgn dE ,(30)which implies that immigration will be environmentally friendly for the host country. This isbecause immigration causes capital outflow and reduces the magnitude of the manufacturingsector, which reduces environmental pollution. However, employment in the agritourism sector
increases, and expanding this sector will improve the natural environment. From (30), the higher
environmental stock of this developed country implies a higher competitive wage rate in the ruralarea. Although the effects on the ratio of unemployed to employed workers in the urban area,  ,are not clear, the urban wage rate will also increase after immigration.
Next, we consider the effect on welfare. In this model, as the competing firms in the
manufacturing industry obtain zero profit, national welfare will be equal to the economic welfareof the workers and capital owners. Note that that the rental price of capital stays constant due tofree capital mobility; therefore, the nominal income level of capital owners is unchanged after
immigration. Thus, the welfare level depends on the competitive wage rate in the rural area, whichis equal to the expected income of a representative worker. Moreover, because of free trade, theprice of manufactured goods also remains unchanged after immigration, and indirect welfare only
depends on the price of agritourism. The expenditure function is defined as12

e( pAT ,V )  w( L  L)  rK ,(31)

where V denotes the utility level of this country. Totally differentiating (31),eedp AT dV  Ldw  wdL .
p AT
V

(32)

From Shephard’s lemma, we have e pAT   LS , and applying pAT   1w  q , (32) yields

dV  (e 1) [( L  L  LS )dw  wdL  w 1 LS d    LS dq ] ,
V
dV
e
dw
 ( ) 1 ( L  L  LS )w  0.
dL
V
dL

(33)
(34)

Considering that the sign of (34) is positive, permitting labor inflow produces a welfare-enhancing
effect for the developed country. Thus, we establish the following proposition:
Proposition 1. (1) Labor inflow will not change the labor and capital input into the manufacturingindustry but will enhance labor input into the agritourism industry. Competitive wage rates in therural area will increase while the urban wage rate will remain constant.
(2) Labor inflow will have positive effects on the level of environmental stock and domestic
economic welfare.
(3) The urban unemployment rate and the urban–rural wage gap will decrease after immigration.
It should be noted that even though total labor endowment in this developed country
increases after immigration, both capital and labor employment in the manufacturing sector
remain unchanged in equilibrium. All the additional workers are employed in the agricultural andagritourism sectors. As the total domestic demand for manufactured goods in this country will
increase after immigration due to the increased population, total exports of manufactured goods
will certainly decrease. Due to the trade balance, this also implies a decrease in total imports ofagricultural goods. Domestic production of agricultural goods will increase to compensate for the
reduced imports of agricultural goods.
13

Noting that Kondoh and Kurata (2021) conclude that labor outflow will have positiveeffects on the economic welfare of the residents in the developing country, we can assert that boththe host and source countries will gain from international migration. It will also contribute to
global environmental improvement.

3.1.2. Improving the Pollution Abatement Technology in the Manufacturing Industry
Next, let us consider improving the pollution abatement technology in the manufacturingindustry through stronger environmental protection policies. From (22), simple calculations yield

dK
 0,
d 1

(35)

dw 1 2
 pM F  w( w   q )[ LM ( FKK FLL  FLK 2 )  FK FLK ]  0 ,d 1 

(36)

dLM
0,
d 1

(37)

d
1
  pM2 F  ( w   q )(1   )[ LM ( FKK FLL  FLK 2 )  FK FLK ]  0 ,
d 1


(38)

dLS 1 2
 pM wF [ LM ( FKK FLL  FLK 2 )  FK FLK ]  0,d 1 

(39)

dw *
dw
d
 (1   )
w
 0,
d 1
d 1
d 1

(40)

dV
e
dw
 ( ) 1 ( L  L  LS )
 0.
d 1
V
d 1

(41)

Improving the pollution abatement technology in the manufacturing industry (decreasing1 ) will enhance the rural competitive wage rate and reduce the ratio of unemployed to employedworkers in the urban area. This result implies a reduction in the wage gap between urban and rural
workers. Simultaneously, due to the reduction of negative effects on the natural environment
through technological improvement, the environmental stock will be improved even though the
manufacturing sector is expanded. Finally, from (40), improving the pollution abatement
technology in the manufacturing industry will have a positive effect on domestic economic
welfare. Hence, we establish the following proposition:
Proposition 2. (1) Improvement of pollution abatement technology in the manufacturing industry
will enhance the competitive wage rate in the rural area, the natural environment, and urban
14

employment while the urban wage rate will remain unchanged. The output of agritourism will
decrease.
(2) Improvement of pollution abatement technology in the manufacturing industry will enhancethe economic welfare of domestic residents.
As the price of agritourism increases due to shrinking production, the welfare of capitalowners, whose nominal income is unchanged, will decrease. However, in total, due to theincreased welfare of rural workers, the effects on the aggregate economic welfare of domestic
people will be positive.

3.2. Improving the Agritourism Sector
Next, let us discuss the technical improvements in the agritourism sector that may enhance
economic welfare, reduce urban unemployment, and increase labor productivity in the tourism
sector. As in Kondoh and Kurata (2021), these improvements include: 1) improving laborproductivity in the agritourism sector, 2) shifting to agricultural-goods-intensive tourism, and 3)
introducing environmentally friendly technology.

3.2.1. Shifting to Agricultural-goods-intensive Tourism
First, let us consider a shift to more agricultural-goods-intensive agritourism. For example,
an additional experience such as apple harvesting will enrich other agritourism services such asaccommodation with local food. This reform will make it possible to consume more of the
agricultural goods in one unit of tourism goods, which translates into an increase in 𝑞 in ourmodel. From (22), simple calculations yield

dK
 0,
dq

(42)

dw 1 2  2 wpM 2 LS [ LM ( FKK FLL  FLK 2 )  FLK FK ]  0 ,
dq 

(43)

dLM
 0,
dq

(44)

d
1
   22 pM 2 LS (1   ) LM [( FKK FLL  FLK 2 )  FLK FK ]  0 ,
dq


(45)

dLS 1
 2w2 pM 2 LS [ LM ( FKK FLL  FLK 2 )  FLK FK ]  0,
dq 

(46)

dw *
dw
d
 (1   )
w
 0,
dq
dq
dq

(47)

15

dV
e
dw
 ( ) 1 ( L  L  LS )  LS  0 .
dq
V
dq

(48)

These results imply that a shift to a more agricultural-goods-intensive agritourism will reduce

the labor input of the tourism industry. In the case of ecological agritourism, labor input in the
manufacturing industry will increase. The rural competitive wage rate and the level ofenvironmental stock will decrease, and the urban unemployment ratio will increase. Furthermore,
the effect on domestic welfare will be negative. Hence, we establish the following proposition:
Proposition 3. (1) Shifting to a more agricultural-goods-intensive agritourism industry will
reduce the labor input into the agritourism industry. The competitive wage rate in the rural area
and the natural environmental stock will decrease while the unemployment ratio will increase in
the case of ecological agritourism.
(2) Shifting to a more agricultural-goods-intensive agritourism industry will have a negative effecton domestic welfare in the case of ecological agritourism.
Therefore, in the case of ecological agritourism, an increase in the per capita consumptionof agricultural goods in the agritourism industry might reduce economic welfare, the level of thenatural environment, and the urban unemployment ratio. These results come from the direct effectof lowering environmentally friendly agritourism’s output. The above results are similar to thoseof Kondoh and Kurata (2021). However, unlike their study, in which the price of manufactured
goods is endogenous, we can obtain negative results for domestic welfare without any
assumptions about the production function of the manufacturing industry.

3.2.2. Environmentally Friendly Agritourism
Next, let us consider a situation in which the agritourism industry becomes moreenvironmentally friendly; for example, introducing sustainable activities such as planting trees.
Such a reform will enhance the positive effect of agritourism on the natural environment. In ourmodel, this means that 𝜆2 would increase. From (22), simple calculations yield

dK
0,
d 2

(49)

dw
1
   LS pM2 w ( w   q )[ LM ( FKK FLL  FLK 2 )  FK FLK ]  0 ,
d 2


(50)

dLM
0,
d 2

(51)

16

d
1
  LS pM2  ( w   q)(1   )[ LM ( FKK FLL  FLK 2 )  FK FLK ]  0 ,d 2 

(52)dLS1
   LS pM2 w[ LM ( FKK FLL  FLK 2 )  FK FLK ]  0,
d 2


(53)

dw *
dw
d
 (1   )
w
0,
d 2
d 2
d 2

(54)

dV
E
dw
 ( ) 1 ( L  L  LS )
0.
d 2
V
d 2

(55)

Equation (55) implies that shifting to more environmentally friendly agritourism will
reduce the labor input of the agricultural industry. The urban and rural wage rates and the level ofenvironmental stock will increase; the urban unemployment ratio will decrease. Furthermore, we
can conclude that the effect on domestic welfare could also be positive. Hence, we establish thefollowing proposition:
Proposition 4. (1) Shifting to a more environmentally friendly agritourism will reduce its labor
input. The output of manufactured goods, the rural wage rates, and the natural environmental
stock will increase, while the urban unemployment ratio and urban–rural wage gap will decrease.
(2) Shifting to a more environmentally friendly agritourism will enhance domestic welfare.
Therefore, a more environmentally friendly agritourism will have a positive effect on welfare
and the level of the natural environment. In the equilibrium, an increased competitive wage rate
will reduce the urban unemployment ratio. Thus, although it looks paradoxical, in our model,labor reallocates from the tourism sector to the agricultural sector, but the wage rate of the
agricultural sector will increase due to environmental improvement in the equilibrium.

3.2.3 Increasing the Labor Productivity of Tourism
Finally, let us consider an increase in labor productivity in the agritourism sector, namely, an
increase in 𝛽. This technological improvement implies that the same amount of tourism goods
can now be produced with less labor input than before. From (22), simple calculations yield

dK
 0,
d

(56)

dw
1
  2 pM2 w2 LS [ LM ( FKK FLL  FLK 2 )  FK FLK ]  0 ,
d


(57)

dLM
 0,
d

(58)

17

d 1
 2 LS pM2  w(1   )[ LM ( FKK FLL  FLK 2 )  FK FLK ]  0 ,
d 

(59)

dLS 1
 pM 2 wLS (2w q  2)[ LM ( FKK FLL  FLK 2 )  FK FLK ]  0,
d 

(60)

dw *
dw
d
 (1   )
w
 0,
d
d
d

(61)

dV
e
dw w
 ( ) 1 ( L  L  LS )
 LS  0 .
d
V
d 

(62)

Equation (60) implies that technological improvement in labor productivity in the tourism
sector will reduce the labor input of the tourism sector in the equilibrium. In the case of ecologicalagritourism, the output of manufactured goods will decrease. The output of agriculture will
increase. Moreover, an increase in labor productivity in tourism will enhance the rural wage rate
and reduce the urban unemployment rate and urban–rural wage gap. Economic welfare willdefinitely increase. Hence, we establish the following proposition:
Proposition 5. (1) In the case of ecological agritourism, an increase in labor productivity intourism will reduce the labor input in both the manufacturing and tourism sectors and enhancethat in the agricultural sector.
(2) An increase in labor productivity in tourism will enhance the rural wage rate and reduce theunemployment rate in the urban area and the urban–rural wage gap.
(3) An increase in labor productivity in tourism will enhance the stock of the natural environment
and economic welfare.
The above proposition asserts that in the case of ecological agritourism, a technologicalimprovement that saves labor input in the agritourism sector will have a positive effect on thedeveloped country. These results are similar to those of Kondoh and Kurata (2021), whose
conclusions also suggested welfare-improving results.

4. Concluding Remarks
We have considered how policies in a developed country and improvements in theagritourism sector may affect the economy. Introducing more advanced pollution abatement
technology into the manufacturing sector or introducing more environmentally friendly activities
into agritourism will be beneficial to the domestic economy in terms of increasing welfare andrural wage rates, and decreasing the wage gap between workers. Similar positive results will occur
18

if tourism can shift to service-intensive production or increase labor productivity. We
demonstrated that encouraging labor inflow is also reasonable for a developed country since it
has a positive effect on domestic welfare and reduce the unemployment rate and urban–rural wagegap.
It should be noted that the above positive effects are only valid when agritourism isecological. If agritourism is exploitative, the negative sign of ∆ is not guaranteed. However,following Kondoh and Kurata (2021), who conclude that labor outflow is beneficial to adeveloping country, we believe that there is the possibility of a win-win situation between thesource and host countries of international migration.8
Several aspects still need to be considered. First, our study only focused on the supply sideof agritourism in a developed economy. Future studies should analyze the demand side of theagritourism sector in greater detail. Second, it might be meaningful to study the necessary
conditions of the above-mentioned win-win situation as applied a two-country generalequilibrium model. Third, it might be interesting to study exogenous changes in domestic
preferences. People may prefer manufactured goods less than before due to expanding agritourism.

Acknowledgements
We would like to thank Keisaku Higashida, Akihiko Yanase, and the attendees of the 11th Spring
Meeting of the Japan Society of International Economics (JSIE) for their helpful and constructive
comments on this study. All remaining errors are our responsibility. This work was supported by
JSPS KAKENHI, Grant numbers JP19K01609, JP19K01637, and JP22K01465.

8

Some counter-intuitive results, including that immigration enhances domestic wage rates, come from (2),originally introduced by Copeland and Taylor (1999). This assumes that no capital input in the agriculture
sector is still controversial because, in reality, at least in developed countries, agricultural production needs
huge capital investment.

19

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