Persistence of an external shock to domestic tourism demand

Abstract

This study investigates two aspects of how an external shock in the guise of the Covid-19 pandemic affects domestic tourism demand: (1) If the impact varies across regions and over time or (2) whether a permanent change (hysteresis) occurs anywhere. By doing so, a presumptive change in domestic tourism demand during three summers is quantified based on timely official data for all Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) and Estonia, encompassing a total of 76 NUTS3 regions. These regions are divided into five groups from large metropolitan to remote. Tourism demand is approximated by the number of domestic overnight stays in accommodation establishments in the summer months 2016–2022. Dynamic panel data estimations, including household consumption and hotel price index, reveal that all non-metropolitan regions experience a strong increase in domestic tourism flows in the first summer of the pandemic compared with the three years preceding 2020. In contrast, the largest metropolitan areas encounter a substantial decline. The surge in demand for non-metropolitan areas continues in 2021, while the large metropolitan regions return to their pre-pandemic level. After this, demand no longer deviates from its pre-2020 pattern across regions, confirming that the effects are temporary.