Mr. Sebastian Acevedo Mejia, Lu Han, Miss Marie S Kim, and Ms. Nicole Laframboise
This paper studies the role of airlift supply on the tourism sector in the Caribbean. The
paper examines the relative importance of U.S.-Caribbean airlift supply factors such as the
number of flights, seats, airlines, and departure cities on U.S. tourist arrivals. The possible
endogeneity problem between airlift supply and tourist arrivals is addressed by using a
structural panel VAR and individual country VARs. Among the four airlift supply
measures, increasing the number of flights is found to be the most effective way to boost
tourist arrivals on a sustained basis. As a case study, the possible crowding effect of
increasing the number of U.S. flights to Cuba is investigated and, based on past
observations, we find no significant impact on flights to other Caribbean countries. The
impact of natural disasters on airlift supply and tourist arrivals is also quantified.
An opening of Cuba to U.S. tourism would represent a seismic shift in the Caribbean's tourism industry. This study models the impact of such a potential opening by estimating a counterfactual that captures the current bilateral restriction on tourism between the two countries. After controlling for natural disasters, trade agreements, and other factors, the results show that a hypothetical liberalization of Cuba-U.S. tourism would increase long-term regional arrivals. Neighboring destinations would lose the implicit protection the current restriction affords them, and Cuba would gain market share, but this would be partially offset in the short-run by the redistribution of non-U.S. tourists currently in Cuba. The results also suggest that Caribbean countries have in general not lowered their dependency on U.S. tourists, leaving them vulnerable to this potential change.