The paper considers an open rural region of a developed country with two sectors, an environmentally sensitive agricultural industry and locally operated tourism that generates pollution. We find that if the representative resident's preference for environmentally friendly tourism services is low, the introduction of additional capital, labor, and tourists promoted by the local government may harm native inhabitants' economic welfare. Even if tourism is environmentally friendly, the inflow of capital or labor may still have negative effects. On the contrary, if each resident's preference for tourism service is high, an increased flow of tourists from outside may have positive effects.
Keywords Tourism * Environmental * Pollution * Remittance
JEL Classification [R.sup.2]3 Q56 * F22
Tourism is widely recognized as one of the best solutions for economic development not only for developing countries but also for rural regions in developed countries. In fact, the experience of many countries, "including Britain, Ireland, France, and the United States illustrates how regional economic growth can also be linked to tourism development" (OECD 1994, p. 7). The main reason is visitors who consume goods and services at tourist spots spend a lot of money which expands the local economy. Thus, most countries are keen to attract tourists from abroad.' One good example is Japan. The Japan Times News (2018) indicated that thanks to great efforts by the Japanese government, the number of foreign visitors has increased drastically from 10.4 million in 2013 to 24 million in 2016, and the country is targeting 40 million visitors by 2020.
However, it is necessary to remember that tourism often causes several problems, notably environmental pollution. Tourism can contaminate the air and water through drainage from hotels and restaurants as well as garbage from sightseeing sites. Damage to the natural environment may adversely affect the health of local residents living in tourist areas in addition to its indirect negative effects such as negative externalities on the productivity of the agricultural and fishery industries. Therefore, it is commonly recognized that establishing environmentally friendly tourism is important. (2) Nevertheless, owing to fast population declines and lost economic prosperity, some developing countries and rural areas of developed countries seem to be rushing to expand tourism without taking sufficiently effective measures to protect the environment.
In this study, the welfare effects of three possible policy levers for promoting tourism are examined: introducing capital, labor, and tourists from outside. The results of these tourism promotion policies on local residents' economic welfare might differ. Hence, which policy is the best for native inhabitants? We aim to answer this question theoretically by considering how those policies affect domestic welfare by changing not only tourism but also the pollution caused by tourism.
Several studies have focused on the environment and tourism. Beladi et al. (2007) examined the effects of tourism on welfare and the environment by applying a two-good model (one tradable good and one non-tradable good). They concluded that an exogenous tourism boom can harm the environment and lower domestic residents' welfare. Their model assumed...