New Insights into ECCU's Tourism Sector Competitiveness

19 Pages Posted: 27 Aug 2019

See all articles by Manuk Ghazanchyan

Manuk Ghazanchyan

International Monetary Fund (IMF)

Li Zhao

International Monetary Fund (IMF)

Steve Brito

International Monetary Fund (IMF)

Vivian Parlak

International Monetary Fund (IMF)

Date Written: July 2019

Abstract

Tourism has become the main driver of economic growth and employment and the most important source of income in the ECCU. Preserving and, possibly, enhancing the competitiveness of the tourism product is key for these countries. Unfortunately, the evidence shows that tourism arrivals to the ECCU have been declining slightly while global demand for tourism is on the rise. The objective of this paper is to study the structural determinants of competitiveness for the ECCU, defined as the relative cost advantage over other touristic regions (Di Bella, Lewis, and Martin 2007). Using a gravity model, we show that proximity to North American and European markets is indeed an important competitive advantage for the ECCU. However, despite this advantage, and, in some cases, specialization in high-end tourism, regression analysis shows that arrivals to the ECCU are sensitive to relative prices. Our simulations show that mitigating supply-side constraints would improve the ECCU's competitiveness and allow the region to regain global market shares.

Keywords: Financial crises, Real effective exchange rates, Economic growth, Unit labor cost, Current account deficits, price elasticity, income elasticity, Eastern Caribbean Currency Union (ECCU), gravity model, tourism arrivals and expenditure, tourism infrastructure, doing business, governance indicators., ECCU, tourism arrival, global tourism market, WEO

JEL Classification: Z30, Z31, Z32, Z38, D42, E01, O24, E52, J3, O4

Suggested Citation

Ghazanchyan, Manuk and Zhao, Li and Brito, Steve and Parlak, Vivian, New Insights into ECCU's Tourism Sector Competitiveness (July 2019). IMF Working Paper No. 19/154. Available at SSRN: https://ssrn.com/abstract=3442868

Manuk Ghazanchyan (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Li Zhao

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Steve Brito

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Vivian Parlak

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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