𝜎 : Elasticity of transformation between domestic and export of i-th good
6.7.6 Calibration of Cobb – Douglas utility function
The calibration of share parameters of Cobb – Douglas utility function (Eq. 5-10 and Eq.
5-11) are simply shown as below:
𝑖 = (1 + 𝑇𝑟𝑖0+ 𝑇𝑑𝑖0)𝑃𝑖0𝑓𝐶𝑖0
∑(1 + 𝑇𝑟𝑖0+ 𝑇𝑑𝑖0)𝑃𝑖0𝑓𝐶𝑖0
Eq. 6-31
where,
fci0 : consumption of good i in based line model
𝑖 : calibrated share parameter of good i in utility function (0 ≤
𝑖 ≤ 1 and ∑𝑖=1)
Tri0, Tdi0 : transport and trade margin of industry i determined in based line model
Table 6-4. Impacts of transportation cost changes on national economy
Scenarios
S0 S1 S2 S3 S4 S5
Benchmark Air -20% Road -20% Water
-20% Rail -20% All -20%
Real National GDP (Mil.
JPY)
476,904,203 476,942,319 479,205,886 477,278,708 477,437,756 480,154,109
0.0080% 0.4826% 0.0785% 0.1119% 0.6815%
Utility
362,460,382 362,489,350 364,209,724 362,745,016 362,865,897 364,930,400
0.0080% 0.4826% 0.0785% 0.1119% 0.6815%
Increase of
Welfare (EV) - 38,116 2,301,683 374,505 533,553 3,249,906 Gross output
(Mil. JPY)
1,022,971,615 1,023,046,498 1,030,157,397 1,024,209,229 1,023,370,779 1,031,879,922
0.0073% 0.7024% 0.1210% 0.0390% 0.8708%
Export demand (Q)
60,876,184 61,045,524 61,249,190 60,882,225 60,884,716 61,433,296
0.2782% 0.6127% 0.0099% 0.0140% 0.9152%
Non-tourism export (Q)
59,760,162 59,755,696 60,132,940 59,768,721 59,768,721 60,143,006 -0.0075% 0.6238% 0.0143% 0.0143% 0.6406%
Tourism export (Q)
1,116,021 1,289,828 1,116,250 1,116,221 1,115,995 1,290,290 15.5738% 0.0205% 0.0179% -0.0023% 15.6152%
The results indicate that, in general, the reduction of transportation cost positively impacts to the nation economy. 20% reduction of air transportation cost stimulates 0.008% real income of nationwide; that of road transportation rises 0.4826%; water and rail transportation increase 0.0758% and 0.1119% respectively. In the case, all transportation sectors together reduce the cost of 20%, the impact is slightly higher than the summation of individual’s impact, increases 0.6815% of national income in comparison with the benchmark value. The gross output also has the same trend impacts with the real income.
The reduction of cost of air, road, water, and rail transportation respectively encourages 0.0073%, 0.7024%, 0.1210%, and 0.0390% of total output. The impact of scenario 5, 0.8708% also shows that the policy applied in all transportation sectors does the light higher impact than the summation of all individual impact of four scenarios.
The results prove the importance of transportation mode to the national economy based on the output of impact. It is easy to understand that, in term of total output, road transportation is the most important to the national economy since it is dominant for freight transportation. Water transportation is the second most important. These two
transportation modes are majorities for manufacturing industries in Japan since it is in-charge for approximately 99% of national cargo transportation. However, in term of welfare, railway transportation brings more real income as well as utility. This phenomenon is maybe because water transportation is the second most majority for freight, but railway is second most majority for passenger travelling service.
6.8.2 Different responses between tourism and non-tourism industries
To distinguish the differences of the impacts of various transportation modes on the non-tourism and non-tourism industries; and among different non-tourism industries, the Table 6-5 is prepared. The table indicates that road transportation strongly impacts on the non-tourism industries of the economy in term of both gross output (0.90%) and demand (0.48%).
Water transportation is the second-best impacts on non-tourism industries, its importance, in term of economic is stimulating 0.16% of gross output, equals to more than one sixth of road transportation; and 0.08% of demand. Air and rail transportation are minorities for non-tourism industries in term of gross output. The reduction of 20% of cost in air and rail stimulate only 0.01% and 0.06% gross output. In term of demand, the cost reduction of air transportation slightly reduces that (-0.03%) of non-tourism industries. The reduction of air transportation cost makes the wage and rental rate of labor and capital slightly increased, this leads the reduction of demand in some industries.
Table 6-5. Changes in gross output and final demand under the transportation cost changes
S1 S2 S3 S4 S5
No Industry Benchmark (Mil. JPY)
Air -20%
Road -20%
Water -20%
Rail -20%
All -20%
Gross output 1 Non-tourism
industries 971,622,955 0.01% 0.90% 0.16% 0.06% 1.12%
2 Domestic tourism 19,747,544 0.67% 1.13% 0.22% 1.74% 3.78%
3 Outbound tourism 2,504,652 3.31% 0.42% 0.05% 0.03% 3.85%
4 Inbound tourism 1,116,021 15.59% 0.50% 0.12% 0.04% 16.35%
Final demand (C,I,E) 1 Non-tourism
industries 483,322,886 -0.03% 0.48% 0.08% 0.03% 0.56%
2 Domestic tourism 13,097,565 0.87% 1.07% 0.22% 2.56% 4.73%
3 Outbound tourism 1,240,026 6.32% 0.40% 0.07% 0.03% 6.87%
4 Inbound tourism 1,116,021 15.57% 0.02% 0.02% 0.00% 15.62%
Note: C, I, E denotes for Consumption, Investment, and Export
In contrast to non-tourism industries, tourism industries more sensitively response to the reduction of transportation cost. With the same degree of transportation cost reduction, for example, air transportation stimulates dozens or hundreds of times the gross output of
domestic, outbound and inbound tourism. If road and water are dominant in encouraging non-tourism industries, road and railway are dominant to domestic tourism; and air transportation is strong effecting to outbound and inbound tourism while it is weak effecting to non-tourism industries.
6.8.3 The changes in demand and output of transportation service industries If the reduction of transportation cost reduces the expenditure industries and households/government pay for their inputs and demand so that positively effects to gross output, welfare of national economy as well as tourism industries; the results shown in the Table 6-6 are the evidences of conversed impacts on output to the transportation service industries.
Table 6-6. Impacts on demand and gross output of transportation service industries under the shocks
S1 S2 S3 S4 S5
No. Industry Benchmark
(Mil. JPY)
Air -20%
Road -20%
Water -20%
Rail -20%
All -20%
I Gross output 1 Railway transport
(passengers) 4,104,880 0.01% 0.96% 0.18% -11.64% -10.62%
2 Railway transport (freight) 121,192 0.03% -0.68% 0.13% -16.61% -17.29%
3 Road transport service (bus,
taxi) 2,989,485 0.01% -2.22% 0.18% 0.08% -1.96%
4 Road freight transport
(except self-transport) 11,994,942 0.03% -14.50% 0.15% 0.06% -14.30%
5 International shipping 4,289,454 0.03% -0.15% -0.58% 0.03% -0.66%
6 Coastal and inland water
transport (passengers) 124,029 -0.01% 0.80% -17.33% 0.06% -16.64%
7 Coastal and inland water
transport (freight) 705,911 0.03% -0.18% -16.10% 0.04% -16.29%
8 Harbor transport service 1,961,848 0.04% 0.51% -10.75% 0.04% -10.23%
9 International air transport 1,114,879 -17.85% 0.73% 0.14% 0.06% -17.09%
10 Domestic air transport
(passengers) 501,021 -43.18% 0.78% 0.12% 0.07% -42.66%
11 Domestic air transport
(freight) 72,801 -9.22% 0.53% 0.14% 0.06% -8.62%
II Final demand (C,I,E) 1 Railway transport
(passengers) 2,631,278 -0.05% 0.13% 0.03% -0.02% 0.09%
2 Railway transport (freight) 304 -0.05% 0.26% 0.06% 0.03% 0.30%
3 Road transport service (bus,
taxi) 1,969,117 -0.05% 0.19% 0.05% 0.01% 0.20%
4 Road freight transport
(except self-transport) 1,427,669 -0.05% 0.13% 0.05% 0.02% 0.14%
5 International shipping 2,964,279 0.02% -0.39% -0.59% 0.02% -0.93%
6 Coastal and inland water
transport (passengers) 99,443 -0.01% 0.92% 0.15% 0.07% 1.13%
7 Coastal and inland water
transport (freight) 4,475 -0.04% 0.42% 0.13% 0.04% 0.54%
8 Harbor transport service 331,916 0.01% -0.09% -10.86% 0.02% -10.93%
9 International air transport 791,149 -0.62% 0.88% 0.19% 0.07% 0.52%
10 Domestic air transport
(passengers) 249,985 -0.20% 0.54% 0.16% 0.04% 0.53%
11 Domestic air transport
(freight) 11,230 0.00% 0.46% 0.15% 0.03% 0.64%
In the inter-industrial economy, since all activities are strong linked each other’s, the payment of an industry will be considered as the incomes of some relevant industries.
The reduction of transportation cost means the less payment of industries and households/government account for transportation services. As the result, the incomes of transportation service industries are negatively affected.
With respect to the scenario of experiment, the reduction in the gross output of a transportation service industry is corresponding to the shock in cost of its. For instant, air transportation cost reduction of 20% decreases 17.85%, 43.18%, and 9.22% of the gross output of International passenger air transport, Domestic air transport (passengers), and Domestic air transport (freight) respectively. Domestic passenger air transportation is the most affected by this deregulation. The reduction of road (S2) transportation cost makes gross output of road passenger and freight transportation falling down 2.22%, 14.50%. In the same manner with air and road transportation, the scenario 3 (S3) indicates that the gross output of International shipping, Coastal and inland water transport (passengers), Coastal and inland water transport (freight), and Harbor transport service loss respectively 0.58%, 17.33%, 16.10%, and 10.75% due to the deregulation of water transportation.
Railway transport (passengers), Railway transport (freight) loss 11.64%, 16.61% of gross production under the fall 20% of rail transportation cost.