Riaz Shareef

Modelling country risk and uncertainty in small island tourism economies

Small island tourism economies (SITEs) differ significantly from each other in many respects, such as their size, location, political systems, historical experience, economic prospects, ecological fragility, and vulnerability to ethnic conflicts, crime and the threat of global terrorism. Given these differences, a careful analysis of country risk (or uncertainty) and its components for SITEs is of substantial interest to private tourism operators and foreign direct investors in the tourism and hospitality industry, tourism commissions and governments. This paper provides a comparison of country risk ratings, risk returns and their associated volatilities (or uncertainty) for six SITEs for which monthly data compiled by the International Country Risk Guide are available. Monthly economic, financial, political and composite country risk returns are used to estimate univariate symmetric and asymmetric models of uncertainty. The empirical results provide a comparative assessment of the country risk returns and uncertainty for the six SITEs.

Modelling international tourism demand and uncertainty in Maldives and Seychelles: A portfolio approach

Maldives and Seychelles in the Indian Ocean are small island tourism economies (SITEs), both of which have relatively small populations, territorial sizes, land area and narrow productive bases. The two SITEs are surrounded by vast ocean and have an overwhelming reliance on international tourism for economic development. Variations in international tourist arrivals to these two SITEs have been affected by unanticipated oil shocks, natural disasters, crime and global terrorism, among others. An accurate assessment of the variations in international tourist arrivals, particularly the conditional volatility, is essential for policy and marketing purposes. The conditional mean and conditional variance of the weekly international tourist arrivals to Maldives and Seychelles from 1 January 1994 to 31 December 2003 for the five main tourist source countries are modelled. Multivariate models of uncertainty are estimated and tested. An assessment and interpretation of the estimates are made for policy makers and tour operators to reach optimal decisions on the basis of a portfolio approach to international tourism demand. The paper assesses four sets of country spillover effects between Maldives and Seychelles, namely (i) the own country effects for Maldives and Seychelles; (ii) the country spillover effects from the remaining four countries within each of Maldives and Seychelles; (iii) the own country spillover effects between Maldives and Seychelles; and (iv) the cross-country spillover effects between Maldives and Seychelles. The empirical results for both Maldives and Seychelles are discussed in terms of each of these components.

Small island tourism economies and country risk ratings

During the last two decades, there has been a growing fascination with the livelihood of islands with small populations and territories which overwhelmingly rely on tourism as a source of exports. The small island tourism economies (SITEs) analyzed in this paper were colonised, and had depended heavily on financial aid from their former colonists for infrastructure development that has declined dramatically since the collapse of the Soviet Union. These economies are developing countries which need a consistent inflow of foreign direct investment to maintain economic growth. They have limited resources, are perceived to suffer from frequent natural disasters, and the international financial community considers them to be risky entities. For this reason, the paper provides a comparison of monthly country risk ratings compiled by the ICRG for six SITEs from 1984 to 2001 and analyses the relationship between country risk and economic growth for these six SITEs using annual data from 1985 to 2000. The economic growth rate is positively correlated with risk ratings in only 13 of the 24 cases. This is a surprising result as the country risk literature asserts that increases in risk ratings are noticeably influenced by higher economic growth rates, and vice versa.

Modelling interstate tourism demand in Australia: A cointegration approach

Interstate tourism is an important component of the domestic tourism business in Australia. However, empirical analyses of interstate tourism demand have not been previously undertaken. The motivation for this paper is to investigate the short- and long-run causal relationships between economic factors and interstate tourism demand in Australia. Using a cointegration approach, this study discovers two distinct results. First, Australian household income, accommodation prices, prices of recreation and restaurants, and domestic airfares have significant impacts on the demand in the short-run. Second, some of the long-run economic coefficients show incorrect signs, which contradict the theory of consumer demand.

The Economics of Small Island Tourism

This study forms an entirely new area of research on Small Island Tourism Economies (SITEs). It addresses the importance of uncertainty in monthly international tourist arrivals and country risk indicators to the macroeconomy.

Risk Management of Daily Tourist Tax Revenues for the Maldives

International tourism is the principal economic activity for Small Island Tourism Economies (SITEs). There is a strongly predictable component of international tourism, specifically the government revenue received from taxes on international tourists, but it is difficult to predict the number of international tourist arrivals which, in turn, determines the magnitude of tax revenue receipts. A framework is presented for risk management of daily tourist tax revenues for the Maldives, which is a unique SITE because it relies entirely on tourism for its economic and social development. As these receipts from international tourism are significant financial assets to the economies of SITEs, the time-varying volatility of international tourist arrivals and their growth rate is analogous to the volatility (or dynamic risk) in financial returns. In this paper, the volatility in the levels and growth rates of daily international tourist arrivals is investigated.

Country Risk Ratings of Small Island Tourism Economies

Over the last twenty years, there has been a growing fascination within public and academic circles about the livelihood of islands with small populations and territory which are present in each of the world’s great oceans. The Small Island Tourism Economies analysed in this paper vary profoundly in their size, land area, and location. Moreover, they have depended heavily on financial aid from their former colonists for infrastructure development, which has declined dramatically since the collapse of Communism. These economies also differ in their narrow natural resource bases on land and in water, in their prospects for self reliance in economic development, and their overwhelming reliance on tourism as a source of exports. These economies are developing countries which need a consistent inflow of foreign direct investment to maintain economic growth. Such sovereign island economies differ in the extent to which they are home to a multitude of ethnic diversity, political systems, historical experience, economic and environmental vulnerability, ecological fragility, the types of risks facing private investors, and in the extent to which they are perceived as, or perceive themselves to be, insular and peripheral. In spite of the vast diversity as well as similarities, researchers are fascinated by the world of small island economies, and are intrigued by their unique features which cannot be addressed through a generalised set of rules. This paper analyses the geographical, historical, economic, tourism-oriented and institutional characteristics, as well as vulnerability to changes in the international economic, financial and political climates, of twenty Small Island Tourism Economies. The snapshot images provide a comparative assessment of the international country risk ratings, and highlight the importance of economic, financial and political risk ratings as components of a composite risk rating for Small Island Tourism Economies.