ECCB Working Paper - What is Driving Toursim Flows to the ECCU

What is Driving Tourism Flows to the ECCU? Insights from a Gravity Model

Kareem Martin and Peter Abraham Jr 1

December 2017

Abstract

This study uses a gravity model framework to model tourism demand in the Eastern Caribbean. We

analyse data from the territories of the Eastern Caribbean Currency Union over the period 2000 –

2016. Estimation of the gravity equation is done using the Poisson Pseudo Maximum Likelihood

technique. This method accounts for the heteroscedasticity problem in the data. The findings show

that traditional gravity model variables are significant in explaining tourism demand in the ECCU.

Income variables are positive and highly significant, while prices and geographic distance affected

tourist arrivals negatively. In addition, the findings show that marketing activity is also an influencer

of tourism demand. Thus, well-constructed marketing strategies are a potential tool for increasing

tourism flows in the short and long term.

JEL Classification : C23, C40, N76, Z32

Keywords : Eastern Caribbean, Tourism, Gravity Models, Poisson Regression

Disclaimer: The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the Eastern Caribbean Central Bank (ECCB) or the Monetary Council. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further discussion.

1 Kareem Martin is an Economist at the Eastern Caribbean Central Bank, Basseterre, Saint Kitts and Nevis. Email: kareem.martin@eccb-centralbank.org.

Peter Abraham is a Country Economist at the Eastern Caribbean Central Bank, Basseterre, Saint Kitts and Nevis. Email: peter.abraham@eccb-centralbank.org.