Economic and Financial Linkages in the Western Hemisphere Seminar organized by the Western Hemisphere Department International Monetary Fund November 26, 2007
Tourism Growth in the Caribbean Padamja Khandelwal, Natalia Barrera, and Cleary Haines
Presented at the Economic and Financial Linkages in the Western Hemisphere Seminar organized by the Western Hemisphere Department International Monetary Fund November 26, 2007
The views expressed in this presentation are those of the author(s) only, and the presence of them, or of links to them, on the IMF website does not imply that the IMF, its Executive Board, or its management endorses or shares the views expressed in the paper.
Tourism Growth in the Caribbean: The Role of Competition Padamja Khandelwal Natalia Barrera Cleary Haines November 26, 2007
Caribbean countries are among the most tourism intensive in the world Average Travel Receipts, (in percent of GDP) 60
50
40
30
20
10
0
de an er rd V Jo pe ia urg a C ban bo a l A xemodi Lu mbtius a i C ur a Mi j . Fi lta ic. a n M mi o D lizeo.. e B o Tca ã i S ma s Ja prua y i C oat a r C mo ica a n . S mi ts.. o t D Ki da t. S enatu s r a G nu elle. . a V ych ce e n S . Vi dos... t S rba as a m B ha cia .. a B Lu a a t. u S tig es n v A ldi a M Source: IMF, International Financial Statistics.
The Caribbean is dependent on a few markets Share of Caribbean Tourist Arrivals by Market of Origin, Average 2000–2004 (In percent of total tourist arrivals to the Caribbean) Caribbean 1/ 10%
South America 1%
Europe 19%
Canada 6%
U.S. 64%
Source: Caribbean Tourist Organization. 1/ The Caribbean market of origin includes the wider Caribbean.
Caribbean tourism growth has slowed Real Travel Exports, five year growth rates in percent, 1981-2005 12 World ECCU Tourism intensive Caribbean
10 8 6 4 2 0 -2 1981-85
1986-90
1991-95
1996-00
Source: IMF, International Financial Statistics; and Fund staff calculations.
2001-05
Caribbean market share in tourism has declined since the mid-1980s Market Share of Caribbean (In percent), 1980-2005 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1980
1983
1986
1989
1992
1995
1998
2001
Source: IMF, International Financial Statistics; and Fund staff calculations.
2004
Market share of other tourism intensive countries has doubled Market Share of Other Tourism Intensive Countries (In percent), 1980-2005 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1980
1983
1986
1989
1992
1995
1998
2001
Source: IMF, International Financial Statistics; and Fund staff calculations.
2004
Market share of East Asia-Pacific region has doubled Market Share of East-Asia and Pacific Countries (In percent), 1980-2005 20 18 16 14 12 10 8 6 4 2 0 1980
1983
1986
1989
1992
1995
1998
2001
Source: IMF, International Financial Statistics; and Fund staff calculations.
2004
Market share of South-Central America and Mexico has declined Market Share of South Central America and Mexico (In percent), 1980-2005 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1980
1983
1986
1989
1992
1995
1998
2001
Source: IMF, International Financial Statistics; and Fund staff calculations.
2004
Research Question What factors are responsible for the decline in Caribbean tourism growth rates since the mid 1980s?
• Rise of new tourism destinations • Price competitiveness
Literature • Competition Literature
Freund (2006) Ahearne, et. al. (2003) Lall, Weiss, and Oikawa (2005) Dimaran et. al. (2007) Lederman et. al. (2007)
• Tourism Demand literature Tsounta (forthcoming), Mwase (forthcoming)
Empirical Approach • Panel with country-specific fixed effects
(Freund, 2006, and Ahearne et. al., 2003) • Annual data – 1986-2005 • Dependent variable: travel exports growth for 10 tourism intensive Caribbean countries. • Control Variables: September 11, Natural disasters
Empirical Approach Independent variables:
Percent change in the travel weighted REER – measure of price competitiveness Real FDI – measure of supply factors Real travel exports growth from Dominican Republic Real travel exports growth from non-Caribbean tourism intensive countries. Real travel exports growth from South-Central America and Mexico Real travel exports growth from non-tourism intensive east Asia-Pacific Weighted real travel imports growth from U.S., Europe, and Canada – measure of demand factors
Travel weighted REER more volatile than traditional measure Tourism Intensive Caribbean: Real Effective Exchange Rate (Annual Percent Change) 20 15 10 Trade Weighted REER
5 0 -5 -10
Travel Weighted REER
-15 1986
1988
1990
1992
1994
1996
1998
Sources: IMF, Information Notice System; and Fund staff calculations. Note: An increase signifies a depreciation.
2000
2002
2004
Regression results Competition in Tourism Intensive Caribbean Countries (Dependent variable: Travel Exports Growth, 1986:2005) Panel fixed effects FD-GMM Coefficient P-value Coefficient P-value ΔREER Real FDI Travel X Dominican Republic
0.001 0.000 0.084
0.030 ** 0.849 0.042 **
Travel X Other Tourism Intensive
0.094
0.391
0.049
0.894
Travel X South-Central America and Mexico
0.394
0.000 ***
0.375
0.077 *
Travel X Non-tourism intensive Asia-Pacific
0.033
0.784
0.121
0.800
Travel M major markets
0.212
0.000 ***
0.364
0.005 ***
-0.038 -0.002
0.038 ** 0.801
-0.076 -0.009
Sept 11 Natural Disaster t Lagged dependent variable C
0.006 0.000 -0.034
0.138 -0.002
No. of Obs. 200 R-squared 0.54 Note: Real data for all the travel series are in growth rates.
0.743 199
0.037 ** 0.910 0.811
0.167 0.622 0.001 ***
Robustness checks • Hausman test • Redundant fixed effects test • Sargan test statistic on FD-GMM estimates • Errors do not have unit root
Interpretation and Conclusions • Price competitiveness is an issue • Elasticity with respect to major markets is low, • •
relative to previous estimates. Travel to the Dominican Republic and SouthCentral America and Mexico is complementary, not competitive. Other tourism intensive countries, and east-Asia Pacific destinations do not seem to have had an impact on Caribbean.
