Modelling international tourism demand and volatility in small island tourism economies

Abstract

Small island tourism economies (SITEs) vary in their size, land area, location, narrow resource bases, economic development, overwhelming reliance on tourism and consistent inflow of foreign direct investment for economic growth. Small island tourism economics differ in their ethnic diversity, political systems, economic and environmental vulnerability, ecological fragility and the risks facing investors. Owing to natural disasters, ethnic conflicts, crime and the threat of global terrorism, there have been dramatic changes in the arrivals of international tourists to SITEs. These variations in international tourism demand to SITEs, particularly the conditional variance (or volatility) in international tourist arrivals, have not previously been analysed in the tourism research literature. An examination of the conditional volatility of international tourist arrivals is essential for policy analysis and marketing purposes. This paper models the conditional mean and conditional variance of the logarithm of monthly international tourist arrivals and the growth rate (or log‐difference) in the monthly international tourist arrivals for six SITEs, namely Barbados, Cyprus, Dominica, Fiji, Maldives and Seychelles. Diagnostic checks of the regularity conditions of the logarithm of monthly international tourist arrivals and their growth rates suggest that the estimated univariate models of trends and volatility are statistically adequate. Therefore, the estimated models are appropriate for purposes of public and private sector management of tourism. Copyright © 2005 John Wiley & Sons, Ltd.