The Economics of Small Island Tourism

The Economics of Small Island Tourism

International Demand and Country Risk Analysis

The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development

Riaz Shareef, Suheija Hoti and Michael McAleer

This study forms an entirely new area of research on Small Island Tourism Economies (SITEs). It addresses the importance of uncertainty in monthly international tourist arrivals and country risk indicators to the macroeconomy.

Chapter 6: Modelling Uncertainty in International Tourist Arrivals to Maldives

Riaz Shareef, Suheija Hoti and Michael McAleer

Subjects: development studies, tourism, economics and finance, environmental economics, environment, environmental economics, tourism, geography, tourism


6.1 INTRODUCTION The discussion in this chapter is an extension of the analysis in Shareef and McAleer (2007). A primary purpose is to model the uncertainty in monthly international tourist arrivals from the eight major tourist source countries to Maldives, which falls into the definition of SITEs. Maldives is probably the only SITE which relies entirely on tourism for the economic well-being of the nation. Tourism accounts for a substantial proportion of foreign exchange earnings, which enables importation of consumer as well as capital goods for economic development, leads to a significant share of government revenue, is a key determinant of development expenditure, and provides employment for a considerable proportion of the workforce. This chapter gives estimates of the conditional mean, the conditional variance (or uncertainty) and static conditional correlations of monthly international tourist arrivals from tourist source countries to a particular SITE, namely Maldives. Such empirical analysis permits a distinction to be made between the short- and long-run persistence of shocks to international tourist arrivals, which provides useful information regarding the effects of shocks on the associated uncertainty. Moreover, the conditional correlation coefficients give an indication of the relationship between shocks to monthly international tourist arrivals, as well as the direction of causality in the monthly international tourist arrivals across the eight main international tourist sources to Maldives. For Maldives, it is crucial to obtain an accurate estimate of the uncertainty surrounding monthly international tourist arrivals based on historical data. In this chapter, we examine the associated volatilities of...

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