Determinants of International Tourism Demand For Africa

ABSTRACT 

The tourism sector has increasingly become an important contributor to the growth and development of the Ghanaian economy. Identified as one of the key drivers of the service sector, the industry offers the country the opportunity to diversify her economy which over the years has been dependent on primary commodities from the extractive industry. Despite the potential of the tourism industry in Ghana, the country still lags behind regional leaders like Kenya, South Africa and Egypt. Since the worldwide tourism industry is very competitive, it is imperative that the tourism products and services offered in the country are more demand driven in order to attract more tourists into the country. Therefore, there is the need to investigate and understand what factors drive tourism demand so that relevant policies and strategies could be adopted to increase tourism growth in the country. The study thus sought to identify and estimate the short and long run factors which drive tourism demand in Ghana. The study used data on arrivals spanning from 1995-2014 from Ghana’s major generating markets outside Africa namely, the United States, United Kingdom, Germany, France, Netherlands, Canada, Italy and Switzerland. Panel Autoregressive Distributed Lag (ARDL)-Pooled Mean Group (PMG) technique was then employed to determine the dynamic relationship between tourist arrivals in Ghana and some selected variables namely GDP per capita of origin countries, tourism prices in Ghana, substitute prices in alternative destinations like Nigeria, level of trade openness of the Ghanaian economy and transport cost incurred by tourists. The study also investigated the impact of external shocks such as the global financial crises in 2007 on tourism demand in Ghana. The results of the study indicated that there exist a cointegration relationship among the variables of the model. Estimation of the Error Correction Model (ECM) of tourism demand in Ghana revealed that the incomes of origin countries, tourism prices in Ghana, substitute prices in Nigeria, the level of trade activities between Ghana and the origin countries, and the global financial crises which occurred in 2007 are key determinants of foreign tourism demand in Ghana in the long run. The study also showed that in the short run, tourists do not consider Nigeria as a substitute destination to Ghana. Additionally, the outcome of the study revealed that the country recorded an increase in the number of tourists from the selected origin countries despite the shock of the global financial crises in 2007. Finally, the outcome of the study suggests that the reclassification of Ghana’s tourism data in 2005 had a negative effect on data on tourist arrivals in the country in the short run. Therefore, the study recommended that in order to stimulate tourism growth in the country, the government must formulate policies that promote trade between Ghana and the origin countries. Government policies must also focus on strengthening the macroeconomic fundamentals of the economy especially achieving low and stable inflation, and stabilization of the domestic currency. This is to ensure that the prices of goods and services in the country remain affordable and internationally competitive. Finally, the study suggested that attention must be paid to diversifying and capturing more markets in order to spread risk of recording low demand in some markets in periods of economic downturns.