Impact of economic factors and a political conflict on international tourism demand in Nepal: A vector error correction model

Abstract

A vector error correction model (VECM) was used to determine short- and long-term relationships of the number of international tourists visiting Nepal during 1962-2012 with gross domestic product (GDP) per capita in China, India, Nepal, Sri Lanka, the UK, and the USA; exchange rate of Nepalese rupee (NPR) to the US dollar (USD); and Maoist insurgency. Three foreign economies, India, Sri Lanka, and the USA, had a short-term associations with the annual international tourist arrivals in Nepal. In the long-term, economic growth in Nepal, Sri Lanka, and the USA was associated with international arrivals in Nepal, whereas the economic growth in China, India, and the UK had no long-term associations. The Maoist insurgency had a negative association with international tourist arrivals in the short term, but the relationship was ambiguous in the long term. Nepal's short-term tourism policies should focus on a strategic marketing in regional countries such as China, India, and Sri Lanka, whereas long-term policies should focus on improving Nepal's safety perception and marketing efforts in all countries with a substantial economic growth.