An empirical analysis on international tourist flow and hotel room prices: the case of Maldives

Abstract

Since the 1950s, international tourism has played a major role in economic development in the developing world in general and small island developing states (SIDS) in particular. The Maldives, for example, has transformed itself from sleepy fishing villages into a luxury destination for rich tourists and has achieved the status of upper-middle-income country. This study extends the scope of empirical analysis of international tourism considerably by covering not only the demand side (e.g. tourist income) but also the supply side factors (e.g. security and environmental amenities). First, using panel data, the study examines the relationship between supply-side factors and tourist inflow from cross-country perspective as well as for the single country case of the Maldives. A major finding is that international tourist inflow is not very sensitive to price compared with tourist income and security issues. Second, primary data from a survey of guesthouses in the Maldives is used to examine the extent of congestion, the relationship between service quality and prices and the problem of free-riding on others’ efforts to preserve the natural environment. Its findings, especially the ones about the externality problems and the impact of security on tourist arrivals, are interesting and offer some policy implications.