Main Determinants of Tourism Demand

Variation in tourism demand and inflows is induced by many factors – ranging from economic and political to social, natural and technological. Some of them are discussed here briefly.


Income in the country of tourists’ origin plays an essential role when it comes to traveling. It is one of the most frequently used variables in tourism studies. Even during the last decade, income has continued to be chosen by many researchers as a significant determinant of tourism demand. In contrast to this unity, they each expressed income in a slightly different way.

International tourism requires money. One has to commit a significant expenditure on transport in order to get to the desired destination and of course pay for a place to stay. However not everybody finds interest in exploring foreign countries. When speaking of recreational travel it`s not necessary to spend money on it. That’s why it would make sense to use discretionary income (i.e. the amount of income that remains after we pay for all necessary expenditures) as a determinant of tourism demand.


Price comes a close second to income when choosing possible significant determinants of tourism demand. Also known as tourism or relative prices, they are difficult to measure precisely because of the wide range of products that tourists are likely to pay for while traveling. Additionally, tourism prices consist of two main components – transportation costs and the cost of living at the destination (Martin and Witt, 1987). The amount of money spent on local travel counts as a part of the cost of living at the destination.

Exchange Rates

Exchange rate is a vital determinant and influences the demand to a great level.  While making decision on their travel destination, tourists are much more aware of the changes in exchange rates than of changes in relative prices. Tourists are in habit of travelling abroad annually and mainly during summer.  Everything they spend abroad is from their annual budget. Both relative exchange rates and relative prices of travel services influence the amount of their spending and are therefore taken into account when deciding whether to take a trip abroad or choose the budget-friendly option and explore their homeland. Due to the fact that exchange rates are published daily (in newspapers, evening news etc.), the tourists have a much more precise knowledge of the values of exchange rates than they have of the prices in their planned destination while making the decision. The information on price changes is generally not known in advance, so the tourists’ only indicator of the destination’s price level is what they remember it to be at the last time they visited that particular destination.

Exchange rates vary a lot over time and are therefore constantly affecting the number of tourists visiting a certain country. The fluctuation in exchange rates can affect the tourists’ decisions in several different ways. The change can be either favourable or unfavourable. Gerakis (1966) identified the impacts caused by a change in exchange rates in favour of the tourists and described that it makes them spend more on things that they would purchase anyway, buy additional goods and moreover such a change attracts new tourists and cross-border shoppers. Reverse effects resulting from an unfavourable change in exchange rates were depicted by The Economist Intelligence Unit (1975), which identified that people tend to travel less abroad, change their final destination, spend less on destination’s goods and services and/or stay for a shorter period of time. Furthermore, they postpone their trip, use a different type of transport and those who travel for business begin to spend less. Similarly, as in cases of income and prices, many empirical studies have employed various definitions of exchange rate variable.

As recognized by Crouch (1993, p. 48), there are three types of exchange rate definitions used in tourism demand literature:

. a) Units of the origin country’s currency per unit of the destination currency.

. b) Units of the origin country’s currency per weighted unit of currencies in foreign destinations.

. c) Weighted units of alternative destinations’ currencies per unit of destination currency.

The use of each definition depends on whether the researcher is interested in identifying the effect of exchange rates on tourism flows between pairs of countries or tourism departures to a larger number of either alternative or all countries. Mainly definitions a) and b) can be found across the tourism demand studies.

The interpretation of changes in relations given by these two definitions is as follows. If the ratio a) increases, it is due to the origin country’s currency devaluation with respect to the destination’s currency. It means that the destination’s goods and services become more expensive for tourists resulting in a decline of tourism demand. Crouch (1993) adds that a change in this ratio can also occur if at time of devaluation of the origin’s currency with respect to other currencies there is a smaller reduction in the value of the destination’s currency. He further explains that the reason behind this kind of change in ratio a) could have a positive effect on tourism demand. The same reasoning can be applied to the case of multiple destinations in b).

Other Economic and Non-economic Variables

Trade Openness

Including the trade openness variable, also known as the volume of trade, in tourism demand analysis could be particularly useful when a destination’s economy is greatly driven by international business. In such destinations, tourist arrivals for business purposes make up a fair share of total arrivals. According to Abbas and Ibrahim (2011) Egypt can be viewed as a country that satisfies the previous assumption. They recognized that the volume of trade has had a significant and positive effect on the international tourism flows to Egypt during the period 1990-2008. Trade openness was measured as the sum of export and import volume between Egypt and the country of tourism’s origin divided by the sum of Egypt’s GDP and GDP of countries of tourism’s origin.

Population Size and Population Segment

It seems reasonable to include this variable among the determinants of tourism

demand. We can assume that the larger the population of countries of tourism’s origin, the more tourists will these countries generate.

The idea of investigating the influence of different population segments on tourism demand rather than focusing on the effects of total population arose quite recently. Different age groups’ consumption patterns vary a lot. Over the past decade, the proportion of older people in developed countries has been steadily rising at the expense of the proportion of younger people (Alvarado and Creedy, 1998). This trend is known as population aging. It can be measured by the share of citizens who are above the retirement age. Their share has been recently rising because life expectancy has been increasing. Since the baby boom after the Second World War fertility rates have dropped significantly and the fact that the babies born then are now near or have already entered retirement certainly adds to the recent population aging trend as well. Retirement represents an important milestone and marks a start of a new and exciting chapter of life. Generally, retirees have more time and money to spend on travelling, which can considerably boost the demand for tourism. Moscardo (2006) calls this type of senior travel a `’third-age tourism” and adds that there is a rising number of companies that specialize in providing tourism services particularly for seniors.


In order to increase awareness of a particular country as attractive tourism destination tourist organizations around the world spend a lot of money on various promotion activities. Different nationalities and cultures are likely to respond differently to marketing and different destinations vary in their ability to use marketing effectively, thus it is rather difficult to model the impact of destination promotion correctly.

Country Attractiveness

Tastes vary from person to person. Moreover, they change and develop over our Life. Age is just one among other various socio-economic factors that influence travellers’ tastes. Sex, marital status and level of education also result in different tastes across population. They can further change as a consequence of rising living standards, advertising or innovation (Song et al., 2009). Due to the fact that there are so many influencing factors, it is very difficult to measure a variable to indicate tastes.

Another way to capture destination preference or popularity of a particular destination over time is by inclusion of a time trend.

Repeated Visits

People generally don’t like taking risks, it could be said that they are risk averse. Although this term is mostly used in relation to behavior of investors, it aptly describes the reluctance to take risks by tourists, too. If they enjoyed the stay in a certain destination it is highly likely that they will return to the same place next time as well. Traveling to a different country they are not familiar with would represent a certain level of uncertainty (Song et al., 2009).

Furthermore, they tell their friends and family about the lovely time they had and what they liked about the destination in particular. After that the information spreads more and more. This is known as so called Word-of-Mouth (WOM) effect. Recent evolution of technology, more specifically in digital social

networking, has encouraged the development of a digital version of WOM (eWOM). Increasing number of travellers look on online tourism review sites for details on accommodation at a particular destination in order to plan their travel (Sigala et al., 2001). Additionally, results of a survey conducted as a part of the Pew Internet and American Life Project (2006) confirm that the most searched topics on the internet are tourism related.

Some of the most popular travel websites include TripAdvisor and TravelPod. TripAdvisor calls itself the world’s largest travel site. It is a place where travellers share insights about accommodation, attractions or restaurants at a destination. It currently contains more than 100 million reviews. TravelPod allows its users to create a blog containing photos and stories about their travel experiences.

Both WOM and eWOM can be viewed as a form of marketing. They have same e_ects as promotional activities of national tourist organizations and attract more tourists to a destination. In addition, they are almost always free of charge (Sigala et al., 2001). Numerous studies have been conducted in order to decide which of these forms of marketing is more effective. Kardon (2007) concludes that tourists are more inuenced by WOM than advertising or pro motion by marketing departments.

The chance of repeated visits, i.e. habit persistence of tourists, is often proxied by the value of dependent variable lagged by one time period. If this variable is included in a model of tourism demand it is expected to have a positive sign. The lagged value accounts not only for habit persistence but also for possible supply constraints in the destinations. Among these constraints are, for example, insufficient hotel and passenger transportation capacity or shortages of staff. (Dwyer et al. 2006).


Specific time of the year, like a season or a period of school holidays, can have a significant effect on tourism demand.  Typically, if using monthly data, twelve seasonal dummy variables are included in the model and similarly four seasonal dummy variables are incorporated regarding the quarterly data (Shareef et al., 2008).


Tourism and culture were viewed as largely separate aspects  earlier. Cultural resources were seen as part of the cultural heritage of destinations, related to the education of the local population and the underpinning of local or national cultural identities. Tourism, on the other hand, was largely viewed as a leisure-related activity separate from everyday life and the culture of the local population. This gradually changed towards the end of the century, as the role of cultural attractions in motivating tourists and distinguishing destinations from one another become more obvious. The growing articulation between culture and tourism was stimulated by a number of factors.

An outbreak of a disease, organization of Olympic Games, terrorist attacks, oil crises, wars, all of these is just some among many examples of one-off events, which can be captured by the inclusion of a dummy variable (Song et al., 2009). Salleh et al. (2007) described and assessed the impacts of SARS (which stands for Severe Acute Respiratory Syndrome) on international tourist arrivals to Malaysia. They investigated the effect of this infectious disease by including a dummy variable for the SARS outbreak in 2003 and estimated it had a negative effect on tourism owes from all of the seven Asian origin countries that were included in their analysis.

Another one-off event that has been often added in a form of dummy variable to the demand models is a year of the terrorist attack. The tourism industry, unfortunately, attracts the attention of international terrorist groups, because it provides them with a wide variety of ways how to gain the attention of global media. Military bases, government institutions, transportation networks, and crowded places can all become targets.

Terrorist events are responsible for an abrupt change in tourists’ decision making and negatively impact upon global tourism demand. Tourists fear for their safety, and moreover, they are discouraged from traveling by heightened security checks resulting in delays in transport systems. However, the apprehension towards traveling doesn’t last long. The impact of a terrorist event on tourism is apparent particularly in the short run and has only a limited effect in the long-run (Middleton et al., 2001). During the last decade, the impact of September 11, 2001 attacks on the volume of tourism has been frequently analyzed. It had an extraordinary profound effect on tourism demand across countries all over the world. The aftermath of 9/11 wasn’t sensed only in the United States but also worldwide because of its unprecedented scale that shocked the whole world.




About Rashid Faridi

I am Rashid Aziz Faridi ,Writer, Teacher and a Voracious Reader.
This entry was posted in Class Notes, earth. Bookmark the permalink.

1 Response to Main Determinants of Tourism Demand

  1. Pingback: Spatial models, Behavioral Research and Impact of Political Economy on Tourism | Rashid's Blog: An Educational Portal

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.