Determinants of Tourism Demand in Indonesia

What is it about?

Notwithstanding the emergent importance of the tourism sector, little is recognized about the drivers determining tourism demand in Indonesia. Government policies to promote tourism flourished after year 2010. This paper investigates the determinants of inbound tourism from the top mayor tourist origin countries into Indonesia. The main findings are that per capita income of tourists, relative price, and available rooms have a positive effect on tourism expenditure in Indonesia, while distance has a negative effect. Large negative shocks in tourism arise from two terrorist attacks in 2002 and 2005, as well as from the global financial crisis in 2008. Income plays a positive but low impact on tourism demand, while prices play a more crucial role. The substantial impact of accommodation may indicate that significant effects of tourism are allocated in lodging, minimizing the impact on other activities.

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Photo by Baehaki Hariri on Unsplash

Photo by Baehaki Hariri on Unsplash

Why is it important?

This paper is important as tourism is growing in importance while little is know about the drivers of larger income from tourism in Indonesia. Terrorism and global financial shock harmed tourism arrivals in Indonesia, while prices remain a key driver of larger tourism inflows. Government policies need to capture drivers of growth if they are to achieve the ambitious goals set for the industry.

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