New Insights into ECCU's Tourism Sector Competitiveness

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.

St. Lucia

“…A 1.0 percent increase in the index is associated with 0.25-0.34 percent decrease in arrivals (Table 1). Alternative specifications, including measures of the REER weighted by trading-partners or tourism-source-countries (as in Laframboise et al 2014 andGhazanchyan et al 2019) are not statistically significant.…”

“…One simplification in the analysis is to consider the fee as a price component of tourist expenditure. The overall impact of prices on tourist demand in the Caribbean has been analyzed in Laframboise et al (2014), Ghazanchyan et al (2019) and Bolaky (2011). They found that the number of tourist arrivals in the region is not overly sensitive to changes in prices; indeed, it responds more to external factors such as income in tourist source countries.…”

“…To quantify the impact of price changes, we estimate the demand of tourist services proxied by the number of stayover arrivals. The econometric specification follows Laframboise et al (2014) and Ghazanchyan et al (2019) with a country specific model for St. Lucia and the monthly W@tB index. The general specification is:…”