Abstract
This Selected Issues paper for The Bahamas reports that the largest portion of tourism expenditure in The Bahamas comes from stayover visitors, and total tourism spending has been stagnant. The Bahamas is a small open economy highly dependent on tourism and the offshore financial sector. Private consumption expenditure in the country or countries of origin is the most important determinant of tourism in The Bahamas.
I. The Determinants of Tourism Demand in The Bahamas1
1. The Bahamas is a small open economy highly dependent on tourism and the offshore financial sector. Though the relative dependency of tourism has been declining since the early 1990s, tourism still accounts for around a quarter of GDP. This paper reviews tourism developments in The Bahamas (Section B), explores the determinants of stayover arrivals and expenditure (Section C), and discusses possible risks to its further development (Section D).
A. Recent Tourism Developments in The Bahamas
2. The Bahamas has experienced an impressive growth in the number of visitors in the last twenty years, especially from cruise ships. The total number of visitors grew to more than 5 million in 2004 from less than 2.5 million in 1984. Cruise ship visitors have increased by more than 9 percent a year on average since 1996, whereas the stayover sector has remained stagnant since the early 1990s. In 2004, cruise ship visitors represented 67 percent of total visitors to The Bahamas, up from 40 percent in the mid-1980s.
Millions of visitor arrivals
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism.Millions of visitor arrivals
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism.Millions of visitor arrivals
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism.3. However, the largest portion of tourism expenditure in The Bahamas comes from stayover visitors and total tourism spending has been stagnant. This reflects the fact that cruise ship visitors spend relatively modest amounts while in the country, and as a result total tourism expenditure in real terms has barely grown from 1990 to 2004. In the first half of the 1990s, tourism expenditure fell sharply as consequence of the first Gulf war, and a deterioration of hotel facilities, in particular in Nassau.2 In the latter half of the decade, tourism expenditure recovered, mainly reflecting an increase in per visitor outlays, but have only returned to the same levels of 1990.
Millions of U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism, and Fund staff calculations.Millions of U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism, and Fund staff calculations.Millions of U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism, and Fund staff calculations.4. The sharp recovery of average expenditure per stayover visitor in the late 1990s was the result of The Bahamas’ strategy of targeting the upscale market. In December 1998, a major expansion of the Atlantis Resort, on Paradise Island—just off Nassau—was concluded.3 After the expansion by 1,200 rooms, Atlantis has more than 2,300 rooms, 17 restaurants, a 100,000 square-foot casino (the largest in the Caribbean), 30,000 square feet of retail space, and several water attractions, all of which are aimed at the high end market of the United States. In 1999, this resort alone represented 16 percent of total hotel accommodations in The Bahamas. From 1998 to 1999, Atlantis nearly doubled the number of room nights available, increased the average daily rate by 13 percent, holding an occupancy rate of more than 80 percent, and increased the casino win by 54 percent.4 From 1998 to 1999, operating income more than doubled.5
U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism, and Fund staff calculations.U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism, and Fund staff calculations.U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism, and Fund staff calculations.5. The “structural break” generated by the conclusion of Phase II of Atlantis was reflected in the sector-wide numbers. From 1998 to 1999, the hotel average daily room rates increased 21 percent in The Bahamas, with occupancy rates close to 70 percent.6 Since then, occupancy rates have been closer to 60 percent due to an increase in room capacity and as a consequence of the reduction in stayover arrivals after the terrorist attacks of September 11, 2001. In 2004, both average daily room rates and occupancy rates started to recover.
In 1999, average daily rates increased sharply…
In 1999, average daily rates increased sharply…
| The Bahamas | Nassau/Paradise Island | |||
|---|---|---|---|---|
| Average Daily Rate | Occupancy rate | Average Daily Rate | Occupancy rate | |
| (In dollars) | (In percent) | (In dollars) | (In percent) | |
| 1997 | 100.4 | 69.4 | 112.8 | 74.7 |
| 1998 | 109.6 | 70.3 | 124.0 | 76.2 |
| 1999 | 132.4 | 68.6 | 147.7 | 76.0 |
| 2000 | 147.5 | 67.2 | 168.7 | 73.3 |
| 2001 | 148.3 | 60.5 | 164.1 | 67.2 |
| 2002 | 155.9 | 62.0 | 178.2 | 67.8 |
| 2003 | 148.4 | 59.2 | 166.6 | 66.4 |
| 2004 | 151.0 | 65.1 | 167.0 | 69.0 |
In 1999, average daily rates increased sharply…
| The Bahamas | Nassau/Paradise Island | |||
|---|---|---|---|---|
| Average Daily Rate | Occupancy rate | Average Daily Rate | Occupancy rate | |
| (In dollars) | (In percent) | (In dollars) | (In percent) | |
| 1997 | 100.4 | 69.4 | 112.8 | 74.7 |
| 1998 | 109.6 | 70.3 | 124.0 | 76.2 |
| 1999 | 132.4 | 68.6 | 147.7 | 76.0 |
| 2000 | 147.5 | 67.2 | 168.7 | 73.3 |
| 2001 | 148.3 | 60.5 | 164.1 | 67.2 |
| 2002 | 155.9 | 62.0 | 178.2 | 67.8 |
| 2003 | 148.4 | 59.2 | 166.6 | 66.4 |
| 2004 | 151.0 | 65.1 | 167.0 | 69.0 |
B. The Determinants of Stayover Arrivals and Expenditure
6. Stayover visitors account for 90 percent of total tourism expenditure in The Bahamas. It is therefore to be expected that policy-makers and entrepreneurs would like to accurately predict the behavior of stayover arrivals and stayover-related expenditure. This section adopts a simple and conventional methodology that may be used to forecast tourism expenditure in The Bahamas, the single equation model, and to better understand recent developments.7
7. This section summarizes a simple single-equation model of tourism outlays in The Bahamas. The model is based on the relationship between the demand for tourism services and fundamental variables like prices and income,
where Qt is the tourism demand in The Bahamas by residents of other countries; Yt is real private consumption in the origin region; Pt is the consumer price index (CPI)-based real exchange rate index of the destination vis-à-vis the competition; and d is a vector of dummy variables used to capture exogenous events that could help explain the time-series of tourism demand from abroad.
8. In this paper, the demand equation is made operational through a linear equation of the following form:
where lower-case variables are the logarithmic version of the variables expressed in upper case in equation (1), dxt is the first difference of the variable xt and n is the number of dummy variables.8 The paper uses the equation described above to study the determinants of both stayover arrivals and stayover expenditure.
9. The regression results indicate that private consumption expenditure in the country or countries of origin is the most important determinant of tourism in The Bahamas (Table 1). The income elasticity shows up with a value larger than one, especially when one focuses on expenditure, which would suggest that tourism in The Bahamas is a luxury good. The relative price of The Bahamas vis-à-vis the regional competition is not statistically significant as a determinant of stayover arrivals; however, the relative price appears with the expected sign and statistically significant as a determinant of expenditure.9 A possible interpretation would be that when competitors lower their prices, The Bahamas’ tourism operators are forced to reduce their prices, thus reducing stayover expenditure, but with no impact in stayover arrivals, as if the operators were targeting an occupancy rate. The war and hurricane dummies are statistically insignificant in both cases.
Total Stayover Arrivals and Expenditure: Ordinary Least Squares Regression of First Differences
Total Stayover Arrivals and Expenditure: Ordinary Least Squares Regression of First Differences
| Total Stayover Expenditure | Total Stayover Arrivals | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | |
| Private consumption expenditure | 4.67*** | 4.84*** | 4.55*** | 4.90*** | 5.10*** | 2.13** | 1.86 | 2.17** | 2.18** | 1.99 |
| in the countries of origin | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.02) | (0.16) | (0.03) | (0.02) | (0.12) |
| Relative price of The Bahamas | −0.41*** | −0.43*** | −0.39** | −0.32** | −0.34 | 0.09 | 0.11 | 0.08 | 0.15 | 0.16 |
| vis-à-vis Caribbean competitors | (0.01) | (0.02) | (0.03) | (0.05) | (0.12) | (0.53) | (0.38) | (0.61) | (0.34) | (0.28) |
| Oil price | 0.11** | 0.11** | 0.07 | 0.08 | ||||||
| (0.04) | (0.04) | (0.13) | (0.14) | |||||||
| Hurricanes in The Bahamas | 0.02 | 0.00 | −0.01 | −0.03 | ||||||
| (0.57) | (0.92) | (0.71) | (0.25) | |||||||
| Wars in which the U.S. participated | 0.01 | 0.01 | −0.02 | −0.02 | ||||||
| (0.79) | (0.76) | (0.53) | (0.42) | |||||||
| Constant | −0.13*** | −0.13*** | −0.13*** | −0.13*** | −0.14*** | −0.05* | −0.04 | −0.05* | −0.05** | −0.04 |
| (0.00) | (0.01) | (0.00) | (0.00) | (0.00) | (0.06) | (0.36) | (0.06) | (0.04) | (0.35) | |
| Observations | 22 | 22 | 22 | 22 | 22 | 24 | 24 | 24 | 24 | 24 |
| R-squared | 0.56 | 0.56 | 0.56 | 0.66 | 0.66 | 0.30 | 0.31 | 0.30 | 0.38 | 0.42 |
Total Stayover Arrivals and Expenditure: Ordinary Least Squares Regression of First Differences
| Total Stayover Expenditure | Total Stayover Arrivals | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | |
| Private consumption expenditure | 4.67*** | 4.84*** | 4.55*** | 4.90*** | 5.10*** | 2.13** | 1.86 | 2.17** | 2.18** | 1.99 |
| in the countries of origin | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.02) | (0.16) | (0.03) | (0.02) | (0.12) |
| Relative price of The Bahamas | −0.41*** | −0.43*** | −0.39** | −0.32** | −0.34 | 0.09 | 0.11 | 0.08 | 0.15 | 0.16 |
| vis-à-vis Caribbean competitors | (0.01) | (0.02) | (0.03) | (0.05) | (0.12) | (0.53) | (0.38) | (0.61) | (0.34) | (0.28) |
| Oil price | 0.11** | 0.11** | 0.07 | 0.08 | ||||||
| (0.04) | (0.04) | (0.13) | (0.14) | |||||||
| Hurricanes in The Bahamas | 0.02 | 0.00 | −0.01 | −0.03 | ||||||
| (0.57) | (0.92) | (0.71) | (0.25) | |||||||
| Wars in which the U.S. participated | 0.01 | 0.01 | −0.02 | −0.02 | ||||||
| (0.79) | (0.76) | (0.53) | (0.42) | |||||||
| Constant | −0.13*** | −0.13*** | −0.13*** | −0.13*** | −0.14*** | −0.05* | −0.04 | −0.05* | −0.05** | −0.04 |
| (0.00) | (0.01) | (0.00) | (0.00) | (0.00) | (0.06) | (0.36) | (0.06) | (0.04) | (0.35) | |
| Observations | 22 | 22 | 22 | 22 | 22 | 24 | 24 | 24 | 24 | 24 |
| R-squared | 0.56 | 0.56 | 0.56 | 0.66 | 0.66 | 0.30 | 0.31 | 0.30 | 0.38 | 0.42 |
10. Oil prices impact positively on stayover expenditure and arrivals, beyond their indirect effect on consumption expenditure. Oil prices affect tourism demand through the substitution and income effects. The substitution effect would have a positive impact on tourism demand for The Bahamas, as the relative cost for U.S. tourists of traveling to other destinations, like Europe and Asia, would rise. However, the income effect would have a negative impact on tourism as high oil prices leave less disposable income for other activities, including tourism. The regressions indicate that high oil prices have a positive and significant impact on stayover expenditure and a positive but less significant effect on stayover arrivals.
11. This simple model explains two thirds of the variation in stayover expenditure from 1982 to 2004. The behavior of stayover expenditure in the last two decades is explained mainly by the variation in income in the countries of origin (more than 45 percent), whereas changes in relative prices seem to have played a minor role (less than 6 percent).
Millions of U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Sources: Ministry of Tourism, and Fund staff calculations.Millions of U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Sources: Ministry of Tourism, and Fund staff calculations.Millions of U.S. dollars at 2000 prices
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Sources: Ministry of Tourism, and Fund staff calculations.12. A separate analysis of tourism from the United States yields similar results. Private consumption expenditure in the United States is the most important variable to explain stayover arrivals and expenditure from the United States to The Bahamas with an income elasticity significantly greater than unity (Table 2).10 The price elasticity is not a significant determinant of stayover arrivals, but it is a significant determinant of stayover expenditure. War and hurricane dummies are not significant as determinants of tourism demand, whereas oil prices impact positively on stayover expenditure by U.S. tourists.
U.S. Stayover Arrivals and Expenditure: Ordinary Least Squares Regression of First Differences
U.S. Stayover Arrivals and Expenditure: Ordinary Least Squares Regression of First Differences
| U.S. Stayover Expenditure | U.S. Stayover Arrivals | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | |
| Private consumption expenditure | 5.38*** | 5.96*** | 5.34*** | 5.61*** | 6.28*** | 2.41*** | 1.97* | 2.52** | 2.46*** | 2.16** |
| in the U.S. | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.01) | (0.07) | (0.01) | (0.01) | (0.03) |
| Relative price of The Bahamas | −0.44** | −0.49** | −0.43* | −0.34* | −0.41 | 0.18 | 0.21 | 0.15 | 0.23 | 0.25 |
| vis-à-visCaribbean competitors | (0.02) | (0.05) | (0.06) | (0.10) | (0.15) | (0.43) | (0.32) | (0.52) | (0.33) | (0.31) |
| Oil price | 0.11* | 0.12** | 0.07 | 0.09 | ||||||
| (0.05) | (0.04) | (0.14) | (0.12) | |||||||
| Hurricanes in The Bahamas | 0.01 | −0.02 | −0.02 | −0.04 | ||||||
| (0.86) | (0.55) | (0.53) | (0.18) | |||||||
| Wars in which the U.S. participated | 0.02 | 0.02 | −0.03 | −0.03 | ||||||
| (0.49) | (0.05) | (0.24) | (0.21) | |||||||
| Constant | −0.15*** | −0.17*** | −0.15*** | −0.15*** | −0.17*** | −0.06** | −0.04 | −0.06** | −0.06** | −0.04 |
| (0.00) | (0.01) | (0.00) | (0.00) | (0.00) | (0.02) | (0.26) | (0.02) | (0.01) | (0.22) | |
| Observations | 22 | 22 | 22 | 22 | 22 | 24 | 24 | 24 | 24 | 24 |
| R-squared | 0.56 | 0.57 | 0.56 | 0.65 | 0.66 | 0.33 | 0.34 | 0.34 | 0.38 | 0.44 |
U.S. Stayover Arrivals and Expenditure: Ordinary Least Squares Regression of First Differences
| U.S. Stayover Expenditure | U.S. Stayover Arrivals | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | |
| Private consumption expenditure | 5.38*** | 5.96*** | 5.34*** | 5.61*** | 6.28*** | 2.41*** | 1.97* | 2.52** | 2.46*** | 2.16** |
| in the U.S. | (0.00) | (0.00) | (0.00) | (0.00) | (0.00) | (0.01) | (0.07) | (0.01) | (0.01) | (0.03) |
| Relative price of The Bahamas | −0.44** | −0.49** | −0.43* | −0.34* | −0.41 | 0.18 | 0.21 | 0.15 | 0.23 | 0.25 |
| vis-à-visCaribbean competitors | (0.02) | (0.05) | (0.06) | (0.10) | (0.15) | (0.43) | (0.32) | (0.52) | (0.33) | (0.31) |
| Oil price | 0.11* | 0.12** | 0.07 | 0.09 | ||||||
| (0.05) | (0.04) | (0.14) | (0.12) | |||||||
| Hurricanes in The Bahamas | 0.01 | −0.02 | −0.02 | −0.04 | ||||||
| (0.86) | (0.55) | (0.53) | (0.18) | |||||||
| Wars in which the U.S. participated | 0.02 | 0.02 | −0.03 | −0.03 | ||||||
| (0.49) | (0.05) | (0.24) | (0.21) | |||||||
| Constant | −0.15*** | −0.17*** | −0.15*** | −0.15*** | −0.17*** | −0.06** | −0.04 | −0.06** | −0.06** | −0.04 |
| (0.00) | (0.01) | (0.00) | (0.00) | (0.00) | (0.02) | (0.26) | (0.02) | (0.01) | (0.22) | |
| Observations | 22 | 22 | 22 | 22 | 22 | 24 | 24 | 24 | 24 | 24 |
| R-squared | 0.56 | 0.57 | 0.56 | 0.65 | 0.66 | 0.33 | 0.34 | 0.34 | 0.38 | 0.44 |
C. Risks and Vulnerabilities
13. This section highlights four risks for the tourism sector in The Bahamas. These risks are the extreme dependency on the United States, hurricanes, the strategy of targeting the high end of the market, and the nature of the product The Bahamas is selling.
14. Tourism in The Bahamas depends heavily on the U.S. economy. As the previous section illustrated, stayover arrivals and expenditure of tourists from the United States are a function of the economic situation in that country. This has been good for The Bahamas, given the strong and sustained pace of growth in the United States. Nevertheless, this heavy dependence11 may be risky in case there is a significant slowdown or a major disruption caused by terrorist attacks. A way to reduce such dependence would be to broaden the base of customers of The Bahamas, particularly to countries with high growth and low or negative correlation with the U.S. cycle.12
15. Hurricanes are a recurring event in the Caribbean and in the Gulf of Mexico. Although regressions with annual data do not capture the effect of hurricanes in a given year, monthly data indicate that they do have a negative impact. For example, Hurricanes Frances and Jeanne in September 2004 seem to have had a large impact on stayover arrivals in that month and afterward. Although hurricanes are unavoidable, policies that enforce adequate building codes and preparedness for the event can help to minimize damages and speed recoveries.
Thousands of stayover arrivals
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism.Thousands of stayover arrivals
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism.Thousands of stayover arrivals
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Source: Ministry of Tourism.16. The strategy of targeting the high end of the market seems to have been successful thus far in buoying up tourism expenditure, but it is subject to risks. Since the market for luxury vacations is a limited segment of the overall tourism market, there is a risk of saturation and excess capacity. This risk may not yet appear to be significant, given the pipeline of luxury tourism projects that have been proposed to the Bahamian authorities, but this also underscores the importance of not distorting private investment decisions by government incentives.
Percentage change, 2004 on 2003
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Sources: Ministry of Tourism; and Fund staff calculations.Percentage change, 2004 on 2003
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Sources: Ministry of Tourism; and Fund staff calculations.Percentage change, 2004 on 2003
Citation: IMF Staff Country Reports 2005, 224; 10.5089/9781451804720.002.A001
Sources: Ministry of Tourism; and Fund staff calculations.17. The Caribbean vacation may be a product reaching maturity. According to the World Travel and Tourism Council, Caribbean travel and tourism activity are expected to grow at an annual average rate of 3½ percent from 2006 through 2015, the lowest of all the regional averages. This contrasts strongly with the projected real growth rate for South Asia of 8 percent and for Southeast Asia of 6¼ percent. The fact that The Bahamas is in the Caribbean region represents itself a risk as it may be selling a mature product.
D. Conclusions
18. Despite a weak performance in terms of stayover arrivals, The Bahamas has been able to recover in terms of tourism expenditure. Although the real expenditure is at the same levels as in the beginning of the 1990s, this represents a major recovery from the depressed levels of the mid-1990s.
19. The most important factor in explaining this recovery has been overseas demand, especially from U.S. tourists. Relative prices vis-à-vis competing destinations appear to have an impact on stayover expenditure, though they are unimportant in terms of stayover arrivals: low prices of competitors reduce stayover expenditure, but do not affect stayover arrivals, a finding that is consistent with a strategy based on achieving a certain level of occupancy rate. Higher oil prices positively impact both expenditure and arrivals.
20. The Bahamas benefits from its dependence on a healthy economy as that of the United States. However, this is also risky. If a recession were to happen in the United States, The Bahamas would be likely to feel the effect more strongly than if the tourist base were widely diversified. With relatively few tourists from other countries, it would be expected that stayover arrivals and especially stayover expenditure would be negatively affected.
21. The strategy of targeting the upscale market has been successful in recovering average expenditure per stayover visitor, but it is not free of risks. The Bahamas should be cautious about building up excess capacity that could lead to a price war among operators and, in the end, jeopardize this strategy.
APPENDIX: Data Sources
The data sources and the construction of variables are as follows. In equation (1), Qt is the real expenditure by stayover visitors to The Bahamas (or the stayover arrivals). This variable is constructed by deflating total stayover expenditure by the CPI in The Bahamas;13 data were obtained from The Bahamas’ Ministry of Tourism, and the Central Bank of The Bahamas. Yt is real private consumption expenditure in the countries of origin; this series is a weighted average of the real household consumption expenditure in the countries of origin.14 Data on household consumption expenditure for the countries of origin (Canada, France, Germany, Italy, United Kingdom, and United States) and CPIs for the Caribbean competitors were obtained from International Monetary Fund’s International Financial Statistics. Pt is the CPI-based real exchange rate index of The Bahamas vis-à-vis the Caribbean competitors;15, 16 and d is a vector of dummy variables used to capture exogenous events such as hurricanes, the first Gulf War, the terrorist attacks on the U.S. on September 11, 2001, the U.S.-led Afghanistan War, and the second Gulf War. In addition to these variables, a simple average of Brent, Dubai, and WTI oil prices per barrel, deflated by the U.S. CPI, is used to capture the effects of oil prices in tourism demand.
References
Central Bank of The Bahamas, 2005, Quarterly Statistical Digest, Vol. 14, No. 1 (February).
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Prepared by André Faria (WHD).
From 1991 through 1998, Nassau and Paradise Island received 51 percent of the stayover arrivals.
This was the so-called Atlantis Phase II. Phase I was launched in 1994.
Casino win is the amount of money the casino has left after expenses (including winnings of the patrons).
Kerzner International 2000, Annual Report, p. 36.
The expansion of Atlantis boosted casino earnings by 32 percent in 1999, and heightened the importance of Nassau and Paradise Island, whose share of stayover arrivals rose to 59 percent on average from 1999 through 2004, compared with an average of 51 percent during 1991–98.
Among the variety of models used in the tourism literature, this paper adopts the most widely used model of the multivariate regression class (for thorough reviews of the literature on tourism forecasting, see Witt and Witt 1995; Martin and Witt, 1989, and Song and others, 2003, evaluate the accuracy of different techniques).
The equation is estimated in first differences because the data appear to be nonstationary.
Crouch (1994) calls attention to the fact that although data on arrivals are more reliable, arrivals tend to be less responsive to determinants than expenditure, “since tourists are able to alter both their length of stay and their daily expenditures as they adjust to changing circumstances” (page 43).
See, for example, Song and others (2003), and Syriopoulos (1995).
This dependence is not surprising given the proximity to the United States. Several gravity trade models show that distance is a powerful determinant of bilateral trade (see, for example, Evenett and Keller, 2002).
As documented by Kose and others (2003), there is evidence of a common world factor as an important source of volatility in most countries, in particular North America and Europe, which limits such a strategy. A natural candidate, however, would be the Asian markets that show little co-movement with the rest of the world (Japan is the exception) and high growth rates. However, distance can be a deterrent.
Since deflators pertaining to tourism-related expenditure are not available for the full period of analysis, the CPI is used. Martin and Witt (1987) showed that the CPI is a reasonable approximation for a tourism price index.
The weights are based on the average share of stayover arrivals from Canada, Europe, and United States for the period 2000-04. Consumption expenditure for Europe is based on the shares of arrivals in the four most important countries of origin in Europe (France, Germany, Italy, and United Kingdom).
The ideal ratio of relative prices would focus on tourism only. Again, the CPI is used instead (see footnote 13).
The weights of the competitors are determined by their market shares. The competitors for which data are available are Antigua and Barbuda, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, Mexico, Netherlands Antilles, St. Lucia, St. Vincent and The Grenadines, and Trinidad and Tobago.
