The impact of crisis events and macroeconomic activity on Taiwan's international inbound tourism demand

Abstract

The number of inbound tourism arrivals directly impacts the tourism industry and the government agency investments therein. Therefore, policymakers need to improve their understanding of how crisis events affect the demand for inbound tourism. From the first quarter of 1996 to the second quarter of 2006, Taiwan experienced four major disasters at approximately two-year intervals. These disasters included the Asian financial crisis in 1997, the 21st September 1999 earthquake, the 11th September 2001 attacks in the United States, and the outbreak of SARS in 2003. This paper examines the impact of crisis events on the demand for tourism in order to establish a better understanding of changes and trends in the demand for international tourism. This paper uses the auto-regression distributed lag model by Pesaran, Shin, and Smith [Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of long-run relationship. Journal of Applied Econometrics, 16, 289–326] to examine the negative impact of these disasters on the demand for inbound tourism. This paper also explores the influence of variables, such as foreign exchange rates, incomes, relative prices, and transportation costs, on the dynamics of the demand for inbound tourism. This paper finds that a long-term equilibrium exists among all variables, indicating that macroeconomic variables may be used to determine the rise or fall of the number of inbound tourism arrivals. Income and foreign exchange rates are both significant explanatory variables. In terms of incurred losses, the number of inbound tourism arrivals suffered the greatest decline during the outbreak of severe acute respiratory syndrome (SARS), followed by the 21st September 1999 earthquake and the 11th September 2001 attacks. The impact of the Asian financial crisis was relatively mild. This paper finds that any impact on safety, whether domestic or international, negatively affects tourism demand. The impact of financial crises on tourism demand is less significant. Ensuring the safety and health of tourists is the key to maintain demand for inbound tourism.