Tourism in the Pacific on the rise
Tourism, like exports, contribute positively to economic growth and development in three important ways: First, international tourism, by exporting a service and facilitating the inflow of foreign currencies, helps a country pay for its imports and maintain foreign currency reserves. Second, tourism stimulates investments in infrastructure and human capital, which, in turn, creates jobs and increases incomes across a variety of industries.1 Finally, growth of tourism may help to spur agricultural output used in the hospitality industry. These three channels, in turn, appear to be even more important for smaller countries, where tourism generally makes up larger portions of the domestic economy.
According to United Nations World Tourism Organization statistics, there were 1.5 million tourist arrivals in the Pacific region in 2013. Almost half of all foreign tourists in the Pacific were welcomed by Fiji in 2012. The next largest receiving countries were Papua New Guinea (12 percent), Samoa (10 percent), the Cook Islands (9 percent), and Palau (9 percent). The main sources of tourists were Australia (44 percent), New Zealand (22 percent), the United States (7 percent), Japan (4 percent), and Taipei, China (3 percent). Despite Asia’s proximity, Asian tourists play a minor role in Pacific tourism (Figure 1), with their share dipping from 15 percent in 2000 to 14 percent in 2011. Nonetheless, the number of tourists from the People’s Republic of China has surged, from 2,540 in 2000 to 35,426 in 2011.
Figure 1: Share (left vertical axis) and number of international tourist arrivals (right vertical axis) of Asian tourists (2000–2011)
Source: Authors’ calculation based on UNWTO database on number of inbound tourists
In the near future, Asia is expected to become a major source of tourist arrivals in the Pacific. The main drivers are a rapidly growing middle class in many Asian countries and their increasing demand for leisure travel. For the Pacific developing member countries, or DMCs, who are Asian Development Bank members, this development constitutes a great opportunity. Many Pacific DMCs have struggled to generate sustainable growth, mainly due to multiple structural constraints, such as their remoteness and small economic size. Tourism offers the possibility to overcome some of these constraints and transform some constraints, such as their remoteness, into positive assets. Many Pacific DMCs have high hopes of achieving sustained economic growth by tapping into Asia’s dynamic tourism sector.
The untapped tourism potential
Given the remoteness of Pacific DMCs, flight connectivity is an important determinant of their capacity to welcome tourists. Improving flight connectivity can make the Pacific DMCs more accessible and feasible for many more international tourists, whose increased numbers would then spur income and infrastructure improvements in these countries. For example, in Peru—a developing country which international tourists, on average, fly about 5,500 kilometers to reach—it has been estimated that a percentage increase in the frequency of long-haul flights increases tourists arrivals by between 0.3 percent to 0.5 percent, with neighboring countries seeing comparable increases in their international tourist arrivals as well.2
New research by ADBI explores the determinants of tourism flows to the Pacific region by combining several data sources.3 The node diagram to the left of Figure 2 depicts all the flight connections available within the Pacific region and with areas outside the region. Interestingly, out of the possible 168 flight connections between areas outside the Pacific region toward Pacific DMCs, only 35 are in place. (Between the Pacific DMCs, 28 out of 116 possible connections exist). The node diagram on the right of Figure 2 illustrates bilateral tourism flows. A comparison of the two diagrams shows that the flight connections only match a fraction of tourist flows to the Pacific DMCs, implying that many tourists to the Pacific region need to board more than one flight to reach their destination.
Figure 2: Node diagrams of direct flight connections and tourism flows between Asia and the Pacific and within the Pacific (2013)
Source: Flight routes from openflights.org; tourist flows from UNWTO. Note: Included in the diagram are areas that had at least one flight connection to one of the Pacific developing member countries.
ADBI’s research highlights the potential for increased flight connectivity of the Pacific DMCs. Based on the information on direct flight connections, bilateral tourism flows and CEPII data, we developed a gravity model that can explain around 75 percent of all tourism flows to the Pacific. Our initial results show that geographical distance between the origin of tourists and their final destination is a major determinant for the number of tourist arrivals in the destination country. Furthermore, we find that colonial links play an important role in predicting the number of tourist arrivals. Interestingly, the estimation results show that countries with a direct flight link have more than twice as many visitors compared to countries without a direct flight link. Increasing the frequency of flights can also increase the number of tourist arrivals significantly. Because our focus is on the Pacific DMCs as a group and not on specific routes, our estimates represent the average effect of improved flight connectivity. Not every new flight connection will have the same effect on tourist arrivals. Some countries will gain more tourists than others because of closer ties with tourist-sending countries or better existing infrastructure. However, our results indicate that there is indeed massive potential for more tourists to the region.
One possible step to increase flight connectivity is to introduce and ensure competition in the transportation sector. Furthermore, in our estimates we have not taken explicitly into account the supply constraints of Pacific DMCs in welcoming more tourists. Realizing the promising economic opportunities that come with more tourists will certainly depend not only on better connectivity, but on creating economic conditions that facilitate more tourism. Apart from improving flight connectivity, governments in the Pacific DMCs can boost tourist arrivals by measures like simplified visa procedures (Arita et al. 2014).4
Most importantly, it is the capacity of Pacific DMCs to accommodate the increased demand for hotels, amenities, and other facilities that come with additional tourists that will determine how much they would benefit from the presence of more visitors from new flights to and within the region. While increasing flights to the Pacific DMCs would attract more tourists, substantial investments in infrastructure would be needed to ensure that any growth in tourism—and the economic benefits associated with it—would be sustained.
1 Brida, J. G., Cortes-Jimenez, I., and Pulina, M. 2013. Has the tourism-led growth hypothesis been validated? A literature review. Current Issues in Tourism. 1-37.
2 Tveteras, S. & Roll, K.H. (2014). Non-stop flights and tourist arrivals. Tourism Economics. Vol. 20. No.1. pp. 5-20(16).
3 Data on the number of tourists comes from bilateral tourism statistics provided by the UNWTO for the years 1995 to 2012. For geographical and cultural variables that link countries we rely on data from CEPII. Finally, we made use of a database containing information on all flight routes worldwide as of January 2012 (http://openflights.org/data.html).
4 Arita, S., la Croix, S., and Edmonds, C. 2014. The Effect of Approved Destination Status on Mainland Chinese Travel Abroad. Asian Economic Journal. Forthcoming.
Helble M. 2014. The Pacific’s Connectivity and Its Trade Implications. ADBI Working Paper Series. No. 499. Tokyo: Asian Development Bank Institute. (Matthias Helble and Paulo Mutuc/Asian Development Bank Institute)