This paper examines the determinants of Hong Kong tourism demand for the top-three major tourist arrival countries, namely Mainland China, Taiwan, and Japan, with an error correction model. Specifically, this paper will examine the effects of relaxing the visa requirement, the launch of the Individual Visit Scheme (IVS), for Mainland Chinese tourists in 2003. Empirical results show that tourists are income-elastic and consider international tourism to be a luxury good. Tourists are more sensitive to changes in the nominal exchange rate than to changes in the foreign pricing level. The positive effect of the launch of the IVS for Mainland Chinese tourists outweighs the adverse impact of the severe acute respiratory syndrome (SARS) on tourism demand for Hong Kong.
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