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. This country consists of 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 twoareas and the structural, frictional unemployment in the urban area. We demonstrate thatencouraging labor inflow improves the natural environment and domestic welfare. We also
assert that an enhancement of the ratio of agricultural goods to touristic services in theagritourism sector will improve the level of the natural environment, domestic welfare, and theurban unemployment rate. Environmentally friendly agritourism also will cause positive effects
on the environment, welfare, and employment. On the other hand, we conclude that agriculturalgood-intensive tourism will cause negative effects.

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 implies an agricultural environment which attracts visitors for
agricultural operations, recreation, entertainment, and/or educational experiences.1 As it is
widely mentioned and accepted, agritourism is considered beneficial to producers andcommunities. Farmers take advantage of the opportunities available to generate additional
income and obtain a direct marketing channel to consumers, while the tourism industry benefits
from the increase in the number of visitors and in their length of stay. Unlike ordinary tourism
which sometimes harms the natural environment, agritourism might be possible to beenvironmentally friendly with visitors’ planting, harvesting, and feeding experiences. Moreover,
the agritourism business may contribute to expanding job opportunities in rural area, andenhanced national income will improve domestic welfare.
While agritourism has widespread in Asian developing countries such as Thailand, thePhilippines, and Cambodia, it is still mainly witnessed in developed countries like the UnitedStates and the EU. There are several important different points about the status of agritourism
and the economic structures between developed and developing countries.
First, in developing countries, the agritourism sector mainly targets to foreign visitors fromrich countries. Services of this sector are not supposed to be consumed by poor domestic
residents. For example, Thailand offers foreign visitors several agritourism trips, which include
visits to fruit farms and farmers' houses, harvesting and cooking experiences, and theopportunity to enjoy traditional foods served by English-speaking local guides.2 While in thedeveloped countries, agritourism is focused primarily on domestic tourists. This implies that the1

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

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

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

2

total output of agritourism directly reflects the welfare of domestic residents who consumes theservices in this sector.
Second, as the 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
an important role in the economic development of developing countries.3 Thus, governments indeveloping countries seem to admit such international labor outflow in most cases. Also, indeveloping countries, as Harris and Todaro (1970) formalized, there exist urban-rural migration
and urban unemployment caused by fixed high wage rate in the urban area. Additionally,
domestic capital in developing countries is quite scarce. Thus, governments in developing
countries often earnest to introduce foreign direct investment (FDI). We need to remark that insome LDCs, almost all of the capital is owned by foreign investors, and thus capital income
does not consist national income of the developing country. On the other hand, in this study, we
focus on the economy of the developed countries with agritourism sectors. As the capital/laborratio is relatively high, the developed country exports capital under free capital mobility. All of
the capital income of the manufacturing sector in the developed countries will belong to thenational income of this country. Labor market is also different. It is natural and realistic toconsider that urban wage rate is flexible, but structural frictional unemployment exists in urban
area which causes wage gap between two areas. In the rural area, similar to developing
countries, we reasonably can assume full employment.
The purpose of this study is to examine the effects of different policies in a developed
country with an agritourism sector compared with the cases in a developing country which havealready been studied by Kondoh and Kurata (2021). We investigate the effects of an exogenouschange in labor supply caused by international immigration. In addition, we consider the effects
of changes in the agritourism industry, focusing on an increase in labor productivity, a shift toagricultural-good-intensive tourism, and more environmentally friendly agritourism.
In this study, similar to Kondoh and Kurata (2021), we analyze the economy which
consists of two regions: an urban area where the manufacturing sector is located and which hasa certain level of structural frictional unemployment, and a rural area where both the agriculturaland agritourism sectors are located. Labor is a necessary input of every sector, while 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 of3

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

3

agricultural goods depends on the stock level of environmental capital, which will be damagedby the manufacturing sector but saved by agritourism. As our study focuses on the economy of adeveloped country, different from Kondoh and Kurata (2021), we assume 1) domestic capitalowners, 2) free capital mobility, 3) free trade, 4) domestic consumption of all three goods, thatis, manufacturing, agricultural and agritourism.
The main results of our study are as follows. First, we demonstrate that encouraging labor
inflow improves the natural environment and domestic welfare. Second, we also can assert thatan enhancement of the ratio of agricultural goods to touristic services in the agritourism sector
will improve the level of the natural environment, domestic welfare, and the urban
unemployment rate. Environmentally friendly agritourism also will cause positive effects on theenvironment, welfare, and employment. On the other hand, we conclude that agricultural-goodintensive tourism will cause negative effects.
On several points, the above conclusions differ from those of Kondoh and Kurata (2021),
which studied the case of a developing country. Different from our intuitions, this study showsthat labor inflow has positive effects on the wage rate of workers in both urban and rural areas.
This is because immigration causes capital outflow and reduces the magnitude of the
manufacturing sector, which yields a reduction in pollution. On the other hand, employment in
the agritourism sector increases, and expanding this sector will improve the naturalenvironment. These effects lead to the improvement of the natural environment, and the wage
rate of the rural area is just equal to the productivity of the agricultural sector. The effects
caused by the improvement of the agritourism sector are similar to those of Kondoh and Kurata(2021), but both the urban wage rate and unemployment rate are endogenously determined inthis study.
Before proceeding, we discuss the relation of this study with existing research. We cancategorize studies about agritourism into three major groups. The first group, which includes
Galuzzo (2018) and McGehee and Kim (2004), define the properties of agritourism by focusing
on the incentives of the supply side of starting a business. The second group, including Carpio etal. (2008), Santeramo and Barbieri (2017), and Sidali et al. (2019), investigate the incentives ofthe demand side such as tourists' preferences and properties. Finally, the third group of studies,
which include Jeczmik et al. (2015), Maude and van Rest (1985), Schilling et al. (2012), andKondoh and Kurata (2021) on the economic effects of agritourism, considers several specificaspects such as natural environmental protection, the income growth of the rural population andlabor mobility. It is important to note that most of the studies in this group are empirical andinclude case studies in countries such as the U.S., the U.K., and Italy, while only a few theoreticalstudies have been carried out.

4Considering 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.
(2004, 2008, 2010), Hazari and Hoshmand (2011), and Yanase (2017), used a trade model toinvestigate the agritourism industry. Furukawa et al. (2019) focused on a rural area of a developed
country and studied the effects of the inflow of capital, labor, and tourists from outside the area,
while Yabuuchi (2013, 2015) studied the economic effects of tourism promotion in developing
countries by applying an extended urban-rural migration model by Harris and Todaro (1970). The
studies above investigate the combined effects of tourism promotion and environmental
protection prompted by a pollution tax, considering production and consumption externalities.
We need to state that theoretical studies that focus on the effects of economic policies underthe existence of the agritourism sector are not accumulated enough. The only exception is Kondoh
and Kurata (2021), which just studied the case of a developing country. This industry contributes
to the increase in employment in the agricultural sector, inducing part of the agricultural goods
produced to be indirectly consumed by tourists. Different from Kondoh and Kurata (2021) inwhich there is no domestic capital owner and no domestic consumption of agritourism, both
agritourism and agricultural good are alternatively consumed by domestic residents, capitalowners, and workers. Considering that agritourism may foster environmentally friendly actions
such as planting trees or cleaning beaches, this sector contributes to the improvement of thenatural environment, which directly determines the productivity of agriculture (Copeland andTaylor, 1999). 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 analysis, while section 4 presents our concluding remarks.

2. The Model
The basic model of this study is similar to Kondoh and Kurata (2021). We extend the basicmodel of Copeland and Taylor (1999) and assume a small developed country with threeindustries:•

The smokestack manufacturing industry, located in an urban area and generates
pollution.

•

The environmentally sensitive agricultural industry, located in a rural area and suffersfrom pollution.
5

•The agritourism industry, which is environmentally friendly and also located in a ruralarea.
The primary factors of production are labor, capital, and environmental stock. Capital is

the specific factor in the production of manufacturing goods, while the level of theenvironmental stock regulates the productivity of the agricultural good. We assume that theagritourism industry manages to supply touristic services combining agricultural goods (e.g.,
local foods) and labor input (e.g., accommodation services). Additionally, as opposed to
traditional tourism, which could harm the natural environment, agritourism contributes toenvironmental protection.4
The production functions of the manufacturing, agricultural, and agritourism industries inthis country are defined as

M = F ( K + K , LM ),(1)

A = E LA ,(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.
which export 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 unit of agricultural goods. Thus, the total output of agritourism can be expressed
as follows:

X = S =  LS = q −1 AT ,(4)

For example, we can imagine a rural tour for the 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

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 the level of environmental stock is a decreasing function of theamount of pollution emitted by the manufacturing industry. Moreover, we consider the positiveeffects on the natural environment caused by agritourism activities. Therefore, the net stock ofenvironmental capital is

E = E − 1M + 2 X ,(5)where 𝐸̄ is the natural stock level of environmental capital before damages; 𝜆1 and 𝜆2 are,respectively, parameters that reflects the magnitude of effects on the natural environment causedby one unit of manufacturing and agritourism output.
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 denotes the number of unemployed workers, and  denotes the ratio of

unemployed to employed workers in 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 wage if not employed. The possibility of a worker being employed or not in every
period depends only on a random probability. On the other hand, as we assume competitive wage
rates in the agricultural and agritourism industry, the wage rates 𝑤 in both sectors are equal. In
the equilibrium after domestic labor mobility between the two regions, we havew = w*LM,
LM + LU(6)

andw* = (1 +  ) w .

7(7)

Regarding the industry structure, as we assume perfect competition with free entry both in
the manufacturing and agricultural industries, the total profits of 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

 M
= pM FK ( K + K , LM ) − r = 0 ,( K + K ) A= E − w = 0.
LA

(10)

(11)
(12)

Condition (12) shows that 𝑤 depends on the level of net stock of the environment.6 The full
employment condition is

LM + LA + LS + LU = L + L ,(13)

where L and L denote the domestic labor endowment and the total amount of immigrants,

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

respectively. We assume that this developed country is capital abundant, and thus L is positivein sign.
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 . Hereagritourism good is assumed non-tradable because it needs labor input like service activities.
Therefore, under free trade, this capital abundant developed country exports manufacturing goods
and imports agricultural goods. The trade balance condition is,pM [ F ( K + K , LM ) − DM ] = q LS + DA − wLA ,(14)

where 𝐷𝑀 and 𝐷𝐴 are the domestic residents’ aggregate consumption levels of manufactured
and agricultural goods, respectively.
Remembering that different from the case of a developing country studied by Kondoh andKurata (2021), all three goods, manufacturing, agriculture, and agritourism goods are consumed
by domestic residents. Thus, on the demand side, we specify the following social utility functionof domestic residents

U = ( DM ) [( DA ) S1− ]1− , 0    1, 0    1, ,(15)

where  and  are the parameters that reflect the preferences for the manufactured goods andagricultural goods, respectively.7 Because each firm obtains zero profit, the GDP of this country
is equal to the capital and labor income, rK + wL . 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 = wL + rK .

(16)

 LS ( w +  q) = (1 −  ) DA ,(17)

Hence, we have

7





Let    (1 −  ) . Then we can rewrite (15) to U = ( DM ) ( DA ) S

91− −

, 0    1, 0    1 .

 DA =  (1 −  ) pM DM .

(18)

From (5) and (12), we can assert

E − 1F ( K + K , LM ) + 2  LS = w2 .

(19)

And from (13), (14), (16) – (18), we can obtain the following two conditions, (1 −  )(1 −  )[wL + rK ] −  (w +  q) LS = 0 .

(20)

pM F ( K + K , LM ) − rK + w[ L − (1 +  ) LM ] = 0 .

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

K , LM , LS , w,

and



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

2 

pM FLLpM FLK−1 FL−(1 +  )0−2 w

0− ( w +  q)00

L − (1 +  ) LM00

− w   dK 0   dLS 
0   dLM − wLM   dw 
0   d 

 0 
 0 
 0 
0
 0 
 0 
 0 
 0 
0
 0 




 
 


=  0  dL +  −2 LS  d  +  0  dq +  F  d 1 +  −  LS  d 2 .




 
 


 0 
 0 
 − w
0
 0 
  qLS  LS  0 
 0 
 0 

(22)

where  =  [(1 −  )(1 −  ) L − LS ] . The determinant of the matrix of (22) is = pM 2 w[ LM ( FLL FKK − FLK 2 ) + FK FLK ][2  − 2w ( w +  q )]− pM ( FKK FL − FLK FK )1 ( w +  q ) wL

(23)

and the sign of  is negative if the number of initial foreign workers, L is sufficiently small,and domestic preference for the manufactured good,  , is sufficiently large to satisfy   0 .

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, which intend to enhance domestic economic welfare and reduce
the unemployment rate in urban areas, introduces the following economic policies: 1) A policy
aimed at encouraging labor inflow, which may contribute to enhancing the labor supply surplus;
2) A restriction policy to emit pollution from the manufacturing sector, which may expand
productivity in agricultural industry in rural areas. We examine the effects of these policies 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
1
= − pM w2 FLK [2  − 2w ( w +  q)]  0 ,
dL


(24)

dw
1
= − w2 ( w +  q)1 pM ( FLK FK − FKK FL )  0 ,
dL


(25)

dLM 1
= pM w2 FKK [2  − 2w ( w +  q)]  0 ,
dL


(26)

d 1
= {wpM 2 [2  − 2w ( w +  q)]( FLL FKK − FLK 2 )dL + w (1 +  ) p1M( w +  q)( FLK FK − FKK FL )},

(27)

dLS 1
= pM 1w2( FKK FL − FLK FK )  0,
dL 

(28)

dw *
dw
d
= (1 +  )
+w
dL
dL
dL
1
= w2 pM 2 [2  − 2w ( w +  q)]( FLL FKK − FLK 2 )  0,
(29)

d ( w * − w)
dw
d
=
+w
dL
dL
dL
1
= [ w2 pM 2 {2  − 2 w ( w +  q )}( FLL FKK − FLK 2 )+ w2 pM ( w +  q )( FLK FK − FKK FL )].

(30)

We can conclude that labor inflow due to migration will reduce the labor and capital input
in the manufacturing sector. This result implies total output and export of manufactured goods
will decrease. On the other hand, after immigration, the agritourism sector expands, 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 .

(31)which implies that immigration will be environmentally friendly to the host country. This isbecause immigration causes capital outflow and reduces the magnitude of the manufacturingsector, which reduces environmental pollution. On the other hand, employment in the agritourism
sector increases, and expanding this sector will improve the natural environment. From (30), thehigher environmental stock of this developed country implies a higher competitive wage rate in
the rural area. Although the effects on the ratio of unemployed to employed workers in the urban
area,  , are not clear, urban wage rate will also increase after immigration.
12

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. Remembering that the rental price of capital keeps constantdue to free capital mobility, the nominal income level of capital owners is unchanged after
immigration. Thus, welfare level depends on the competitive wage rate in the rural area, which isequal 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 justdepends on the price of agritourism. The expenditure function is defined ase( pAT ,V ) = wL + rK ,(32)

where V denotes the utility level of this country. Totally differentiating (32),eedp AT +
dV = Ldw .
p AT
V

(33)

From Shephard’s lemma, we have e p AT =  LS , and applying pAT   −1w + q , (33) yields

dV
e
dw
= ( )−1 ( L − LS )
0.
dL
V
dL

(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 reduce the labor and capital input to the manufacturingindustry and labor input to the agritourism industry. Both competitive wage rates in the urban andrural areas will increase.
(2) Domestic agricultural production will increase, and the magnitude of international trade will
decrease.
(3) Labor inflow will cause positive effects on the level of environmental stock and domestic
economic welfare.
(4) The effects on the urban unemployment rate and the urban-rural wage gap are ambiguous

13Remembering that the conclusions by Kondoh and Kurata (2021) suggest that labor outflow
will cause positive effects on the economic welfare of the residents in the developing country, we
can assert that both the host and source countries will gain from international migration. It will
also contribute global environmental improvement.

3.1.2. Improve the Pollution Abatement Technology in Manufacturing Industry
Next, let us consider improving pollution abatement technology in the manufacturingindustry due to the more restricted environmental protection policies. From (22), simple
calculations yielddK
1= − F  ( w +  q ) pM FLK wL  0 ,
d 1


(35)

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

(36)

dLM 1= F  ( w +  q ) pM FKK wL  0 ,d 1 

(37)d
1= − pM2 F  ( w +  q )[−( L − (1 +  ) LM )( FKK FLL − FLK 2 ) + (1 +  ) 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 22= (1 +  )+w= pM  Fw( w +  q ) L( FKK FLL − FLK
)0
d 1
d 1
d 1 

(40)d ( w * − w)
dw
d
=
+w
d 1
d 1
d 1

(41)

1
2
= − pM2  Fw( w +  q)[( LM − L)( FKK FLL − FLK) + FK FLK ]  0

dV
e
dw
= ( ) −1 ( L − LS )
 0.
d 1
V
d 1

(42)

The improving pollution abatement technology in the manufacturing industry (decreasing1 ) will enhance 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. In addition, the output of manufactured goods will increase. At the same time, due to the
reduction of negative effects on the natural environment by technological improvement, the14environmental stock will be improved even though the manufacturing sector is expanded. Finally,
from (42), improving pollution abatement technology in the manufacturing industry will havepositive effects on domestic economic welfare.
Proposition 2. (1) Improvement of pollution abatement technology in the manufacturing industry
will enhance competitive wage rates in the urban and rural areas, the natural environment, andthe employment of urban area while it will reduce the urban-rural wage gap. The output ofagritourism 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 the shrinking of production, the welfare ofcapital owners whose nominal income is unchanged will decrease. But in total, due to theincreased welfare of rural workers, the effects on the aggregate economic welfare of domestic
people are positive in sign.

3.2. Improvement of 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. Similar to Kondoh and Kurata (2021), these improvements include: 1) Improvement inlabor productivity in the agritourism sector, 2) Shift to agricultural-good-intensive tourism, and
3) Introduction of environmentally friendly technology.

3.2.1. Shift to Agricultural-good-intensive Tourism
First, let us consider a shift to more agricultural-good-intensive agritourism. For example,
an additional experience like apple harvesting will enrich other agritourism services such asaccommodation with local food. This reform will make it possible to consume more of the
agricultural good in one unit of tourism goods and it translates into an increase in 𝑞 in our model.
From (22), simple calculations yielddK
1= − 2 2 LS pM FLK wL  0 ,
dq


(43)

dw 1 2=  2 wpM 2 LS [ LM ( FKK FLL − FLK 2 ) + FLK FK ]  0 ,
dq 

(44)

15

dLM 1= 2 2 LS pM FKK wL  0 ,
dq


(45)

d
1
= −  22 pM 2 LS {−[ L − (1 +  ) LM ]( FKK FLL − FLK 2 ) + (1 +  ) FLK FK ]  0
dq


(46)

dLS 1
= {2w2 pM 2 LS [ LM ( FKK FLL − FLK 2 ) + FLK FK ]
dq 

(47)

+ 1 LS pM ( FKK FL − FLK FK ) wL}  0,dw *dwd 1 2= (1 +  )+w=  2 pM 2 LS wL( FKK FLL − FLK 2 )  0
dq
dq
dq 

(48)

d ( w * −w)
dw
d
1
=
+w
= −  22 pM 2 LS w[( LM − L)( FKK FLL − FLK 2 ) + FLK FK ]  0 (49)
dq
dq
dq


dV
e
dw
= ( )−1 ( L − LS )−1  0 .
dq
V
dq

(50)

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

the labor input of the tourism industry while that of the manufacturing industry will increase. The
competitive wage rate and the level of the environmental 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 good-intensive agritourism industry will reduce
the labor input to the agritourism industry. Both the competitive wage rate in urban and rural areas
and the natural environmental stock will decrease while the unemployment ratio will increase.
(2) Shifting to a more agricultural good-intensive agritourism industry will have a negative effecton domestic welfare.
Therefore, an increase in per capita consumption of agricultural goods in the agritourism
industry might reduce the economic welfare, the level of the natural environment and the urban
unemployment ratio. These results come from the direct effect of lowering environmentallyfriendly agritourism output. The above results are similar to Kondoh and Kurata (2021). However,different from Kondoh and Kurata (2021), in which the price of manufactured goods is
endogenous, we can obtain negative results on domestic welfare without any assumptions about
the production function of the manufacturing industry.

16

3.2.2. Environmentally Friendly Agritourism
Next, let us consider the 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, it means that 𝜆2 would increase. From (22), simple calculations yielddK 1=  LS  ( w +  q ) pM FLK wL  0 ,d 2 

(51)dw
1= −  LS pM2 w ( w +  q )[ LM ( FKK FLL − FLK 2 ) + FK FLK ]  0 ,
d 2


(52)

dLM
1
= −  LS  ( w +  q) pM FKK wL  0 ,
d 2


(53)

d
1
=  LS pM2  ( w +  q ){−[ L − (1 +  ) LM ]( FKK FLL − FLK 2 ) + (1 +  ) FK FLK }  0
d 2 

(54)dLS
1= −  LS pM2 w[ LM ( FKK FLL − FLK 2 ) + FK FLK ]  0,
d 2


(55)

dw *
dw
d
1
2
= (1 +  )+w= −  LS pM2  w( w +  q) L( FKK FLL − FLK
)0
d 2
d 2
d 2


(56)

d ( w * − w)
dw
d
=
+w
d 2
d 2
d 2

(57)

1
2
=  LS pM2  w( w +  q)[( LM − L)( FKK FLL − FLK) + FK FLK ]  0

dV
E
dw
= ( ) −1 ( L − LS )
 0.
d 2
V
d 2

(58)

Equation (58) implies that shifting to a 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, while the urban unemployment ratio will decrease.
Furthermore, we can conclude the effect on domestic welfare could also be positive. Hence, weestablish the following proposition.
Proposition 4. (1) Shifting to a more environmentally friendly agritourism will reduce its labor
input. The output of manufactured goods, both the urban and rural wage rates, and the naturalenvironmental 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.
17

Therefore, a more environmentally friendly agritourism causes positive effects on welfare
and the level of the natural environment. In 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 equilibrium.

3.2.3 Increase in Labor Productivity of Tourism
Finally, let us consider an increase in labor productivity of the agritourism sector, namely an
increase in 𝛽. This technological improvement implies the same amount of tourism goods could
now be produced with less labor input than before. From (22), simple calculations yielddK 1= 2 LS  pM FLK w2 L  0 ,
d 

(59)

dw
1
= − 2 pM2 w2 LS [ LM ( FKK FLL − FLK 2 ) + FK FLK ]  0 ,
d


(60)

dLM
1
= − 2 LS  pM FKK w2 L  0 ,
d


(61)

d 1
= 2 LS pM2  w{−[ L − (1 +  ) LM ]( FKK FLL − FLK 2 ) + (1 +  ) FK FLK }  0
d 

(62)

dLS 1
= { pM 2 wLS (2w q − 2)[ LM ( FKK FLL − FLK 2 ) + FK FLK ]
d 

(63)

+ 1 qLS pM ( FKK FL − FLK FK ) wL}  0,
dw *
dw
d
1
2
= (1 +  )+w= − 2 wpM2 LS L( FKK FLL − FLK
)0
d
d
d


(64)

d ( w * − w)
dw
d 1
2
=
+w
= 2 w2 pM2 LS [( LM − L)( FKK FLL − FLK) + FK FLK ]  0
d
d
d 

(65)

dV
e
dw w
= ( )−1 ( L − LS )
+
 0.
d
V
d  2(66)

Equation (63) implies that a technological improvement in labor productivity of the tourism
sector will reduce the labor input of the tourism sector in equilibrium. Therefore, in total, theoutput of manufactured goods will decrease. Moreover, the urban and rural wage rates will
increase, and the urban unemployment rate will decrease. Hence, we establish the following
proposition.
18

Proposition 5. (1) An increase in the labor productivity of tourism will reduce the labor input inboth the manufacturing and tourism sector and enhance that in the agricultural sector.
(2) An increase in labor productivity of tourism will enhance both the urban and rural wage rates
and reduce the unemployment rate in the urban area and the urban-rural wage gap.
(3) An increase in labor productivity of tourism will enhance the stock of the natural environment
and economic welfare.
The above proposition asserts that a technological improvement that allows saving labor input inthe agritourism sector causes positive effects on the developed country. Those results are similar
to Kondoh and Kurata (2021), whose conclusions also suggest 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 andboth the urban and rural wage rates while decreasing the wage gap between workers. Similar
happy results will occur if tourism can shift to service-intensive production or increase in laborproductivity.
We demonstrated that encouraging labor inflow is also reasonable for a developed country
since it has a positive effect on domestic welfare. But this policy is not best one because it may
enhance urban unemployment rate and/or urban-rural wage gap. However, following Kondoh andKurata (2021) which concludes that labor outflow is beneficial for a developing country, we may
conclude the possibility of win-win results between the source and host countries of internationalmigration.
There are still aspects that need to be considered since our study only focuses on the supply
side of agritourism in a developed economy. In future studies, we should analyze the demandside of the agritourism sector in greater detail.

Acknowledgement
We appreciate Keisaku Higashida for their helpful and constructive comments for this paper. Of
course, all remaining errors are on our responsibilities. This work was supported by JSPS
19

KAKENHI Grant number JP19K01609, JP19K01637, and JP22K01465.

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