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Journal of Gambling Studies
Published in: Journal of Gambling Studies 2/2010

01-06-2010 | Original Paper

The Impacts of Gaming Expansion on Economic Growth: A Theoretical Reconsideration

Authors: Guoqiang Li, Xinhua Gu, Ricardo Chi Sen Siu

Published in: Journal of Gambling Studies | Issue 2/2010

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Abstract

This paper employs a general equilibrium framework to analyze the effects on economic growth of global expansions in casino gaming, which exports gambling services largely to non-residents. Both domestic and foreign investments in the gaming sector bring in not only substantial revenues but also positive spillover effects on related sectors and even on the entire local economy. However, an over-expansion of commercial gambling may lead to deterioration in the terms of trade with an adverse impact on real income. If this situation persists, it would not be impossible for immiserizing growth to occur. As a highly profitable sector, casino gaming may enable its operators to diversify out of this risk if they invest retained profits in non-gaming sectors to cash in on the spillover effects it has created. The gaming-dominant economy can then be directed on a more balanced and sustainable growth path, and will become less susceptible to business cycles. Indeed, economic experiences in the world’s major casino resorts are consistent basically with this argument for diversification. We believe that after the current global crisis fades away, economic growth and resulting surges in global demand for gambling services can provide further opportunities for the expansion of existing casino resorts and the development of new gaming markets.
Footnotes
1
Although a number of recently published papers investigate the contributions of legal casino gaming to economic growth, most, if not all, of them do not employ a standard economics approach to addressing the issues under consideration.
 
2
In this study, the term “local economy” refers to a specific geographical area, which is not necessarily a sovereign state (i.e., a country) but may be a city, a metropolitan area, or a country with a number of economic sectors. Accordingly, trade flows in this paper are not a national—but a territorial-based concept of transactions in goods and services.
 
3
See Markusen et al. (1995) and Varian (2006) for the related discussions of homothetic preferences and community indifference curves.
 
4
See Markusen et al. (1995) and Varian (2006) for the properties of the production possibilities frontier. The PPF curve is strictly bowed out from the origin, reflecting the rising opportunity cost of producing one good measured in terms of another good as a result of requiring different factor proportions and/or the variability of factors’ aptitudes in different occupations. This geometric property arises naturally if decreasing returns to scale prevail in all sectors (i.e., the average cost AC rises with scale of output), and can also happen even if the production of either x 1 or x 2 exhibits constant returns to scale (i.e., the AC stays constant regardless of output). Even in the case of increasing returns to scale (i.e., the AC drops as output expands) which are not sufficiently strong, we can safely assume that the PPF curve still bows out except near the axes (Caves et al. 2007).
 
5
How to price commercial gambling is an unsolved issue hard to address. Casino operators may observe the gambling price (as a price setter), but gambling patrons do not (as a price taker). Although there is no explicit or trading price for gambling services, an implicit or theoretical price must exist between casinos on the supply side and patrons on the demand side. This question is largely a matter of empirics, so will not be important in our theoretical discussion on trade equilibrium.
 
6
See Appleyard et al. (2008) and Carbaugh (2009) for the determination of terms of trade in the context of offer curves.
 
7
This framework is universally applicable to gaming issues in many locations. In the case of America, the sum of all gaming facilities is referred to as a gaming-based economy (called A), and all other U.S. economic sectors and foreign economies such as their visitors (call B) are viewed as the trading partner of economy A. Then economy A exports gambling services to economy B while importing all other goods from the latter. Then one can study U.S. gaming economic impacts such as the contribution of gaming expansions to local growth in casino resorts.
 
8
DSEC—E-Publications—Tourism and Services—Visitor Arrivals (2009).
 
9
Normally, casino gambling services are considered a labor-intensive product by operation (Walker 2007, p. 166).
 
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Metadata
Title
The Impacts of Gaming Expansion on Economic Growth: A Theoretical Reconsideration
Authors
Guoqiang Li
Xinhua Gu
Ricardo Chi Sen Siu
Publication date
01-06-2010
Publisher
Springer US
Published in
Journal of Gambling Studies / Issue 2/2010
Electronic ISSN: 1573-3602
DOI
https://doi.org/10.1007/s10899-009-9165-5

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