The gravity model is the most popular method used in empirical studies of the determinants of trade. This paper uses the gravity model to explain the determinants of trade in a particular group of services traded, namely, tourism. The nature of the data is such that it allows the use of count data models. Consequently, a negative binomial panel model is used to estimate an augmented gravity model in order to explain the determinants of the number of tourists arriving in New Zealand from over 200 countries between the years 1981 and 2006. It is found that the GDP of both New Zealand and of other countries, the distance between New Zealand and the other countries, the exchange rate of the New Zealand dollar, and the stock of immigrants in New Zealand from other countries affect the number of tourism arrivals in New Zealand. In particular, the results suggest that a 10 % increase in the stock of immigrants from a particular country leads to a 2.1 % increase in the number of tourists from that country, all else equal. This is in line with the findings in previous studies that investigated the immigration-tourism link for other countries.
This is an important finding. Tourism is a vital industry for New Zealand. In the year ended March 2011, 2.5 million overseas visitors came to New Zealand (over half the resident population), spending $NZ9.7 billion. New Zealand has one of the highest populations of foreign born residents in the world. In 2006, 22.9 % of people in New Zealand (879,543 people) were born overseas (2006 Census:
QuickStats About Culture and Identity, Statistics New Zealand). New Zealand has had, on average, a net gain of 39,000 immigrants (4.4 % of the immigrant population in 2006) from other countries per year in the last 10 years.7There is, therefore, a source of constant growth for New Zealand’s tourism exports. This is quite advantageous for tourism in New Zealand.
The finding in this study presents a policy instrument for the New Zealand government. Governments can implement higher target levels for residency
7Author’s own calculations based on Table 9 in Statistics New Zealand (2012).
approvals to boost New Zealand’s tourism exports. The immigrant stock variable in the estimated model is the only policy variable that is directly under government control.
The airline industry may also benefit from this finding. The international tourism sector in New Zealand is dependent on long-haul inbound markets, except for Australia. There may be benefits for the airlines if they focus their marketing and scheduling strategies on countries from which New Zealand gains most immigrants.
Areas from which overseas-born people originate from are changing. For example, in 2001, 32.3 % of immigrants were born in the United Kingdom and Ireland, but by 2006, the proportion from this area dropped to 28.6 %. On the other hand, the proportion of immigrants from Asia increased from 23.7 % in 2001 to 28.6 % in 2006. The number of immigrants from China and India has increased by more than 100 % between 2001 and 2006.8
There are some aspects of the present analysis that can be improved in future research. The immigration elasticity, the key parameter of the study, is assumed to be constant. An extension of the analysis would be to allow it to depend on its level and/or on income. Similarly, the impact of immigrants may vary depending on the country in which the immigrants are born. Furthermore, the dependent variable in this study is the number of all short term visitors to New Zealand. The impact of immigrants may be different for different types of visits. A more detailed analysis based on travel purpose (such as visiting friends and relatives, holidays, education, etc.) may be possible depending on data availability.
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