Revisiting Tourism Flows to the Caribbean - IMF

The Caribbean share of the global tourism market has been declining. ... containment in “low-end” destinations, including possibly via exchange rates, and an ...
800KB Sizes 3 Downloads 187 Views
WP/14/229

Revisiting Tourism Flows to the Caribbean: What is Driving Arrivals? Nicole Laframboise, Nkunde Mwase, Joonkyu Park, and Yingke Zhou

2 WP/14/229

© 2014 International Monetary Fund

IMF Working Paper Western Hemisphere Department Revisiting Tourism Flows to the Caribbean: What is Driving Arrivals?

Prepared by Nicole Laframboise, Nkunde Mwase, Joonkyu Park, and Yingke Zhou1 Authorized for distribution by Jan Kees Martijn December 2014 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract The Caribbean share of the global tourism market has been declining. This study examines what is driving tourism flows. It estimates the determinants of tourism and explores variations based on sample differences, and also constructs a static nominal price comparison index. The paper finds that: (i) tourism arrivals and expenditure are sensitive to both price and income factors in source markets; (ii) price and income elasticities of tourism have declined since 2008; (iii) price elasticity is statistically insignificant for “high-end” destinations; and (iv) the nominal cost of an average one week beach holiday in the Caribbean is higher than in other beach destinations around the world. These results point to the need for structural reforms to raise product quality, cost reduction or containment in “low-end” destinations, including possibly via exchange rates, and an adjustment in aggregate consumption to adapt to the implications of a lower contribution to GDP from tourism. JEL Classification Numbers: C33, L83, N16, O54 Keywords: price elasticity, income elasticity, Carribean, tourism arrivals and expenditure Authors’ E-Mail Addresses: [email protected], [email protected], [email protected], [email protected]

1

We are grateful to Roberto Garcia-Saltos, Charles Kramer, Herman Kamil, Jan Kees Martijn, Andre Meier, Roberto Perrelli, Evan Curtis Tanner, Kazuaki Washimi, Alejandro Werner, and seminar participants from WHD and SPR at the IMF, and from the University of West Indies for their comments and suggestions. Thank you also to research assistants Sashana Whyte and Francis Strodel for their excellent work.

3 Table of Contents Abstract ......................................................................................................................................2  I. Introduction ............................................................................................................................4  II. Literature Review ..................................................................................................................5  III. Tourism Performance in Recent Years ................................................................................6  IV. Determinants of Tourism Arrivals and Expenditure .........................................................10  A. Data .........................................................................................................................10  B. Estimation Strategy .................................................................................................10  C. Empirical Results ....................................................................................................12  V. “Week at the Beach” Index .................................................................................................15  A. Data .........................................................................................................................15  B. Concept and Approach ............................................................................................15  C. Findings .................................................................................................