Exploring the role of tourism dependency on COVID-19 induced economic shock in the Small Island Developing States

ABSTRACT

All countries have suffered significant economic losses due to COVID-19 but some are affected more than others. A number of vulnerabilities explain the magnitude and differences in the economic shocks felt worldwide. This paper uses Ordinary Least Squares regression techniques to estimate the role of tourism dependency in explaining the differences in the COVID-19 induced economic shock in a sample of Small Island Developing States. The model also includes remittances, natural resource dependency, government debt and a measure of the quality of governance. The results confirm tourism dependency plays a significant role in explaining the cross-country differences in economic shocks. The economies that are more dependent on tourism have suffered larger economic shocks but remittances and natural resources have mitigated the negative impacts. The differences in the quality of governance also matter but debt levels do not explain the cross-country variations in the economic shocks. Hence, these fragile and small island economies need to develop appropriate economic diversification strategies, strengthen traditional economic activities and adapt new strategies, products and innovative business models for their tourism industry as the pandemic recedes and global travel resumes.

KEYWORDS:

• COVID-19
• economic impact
• economic shocks
• Small Island Developing States
• tourism

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 These are the SIDS that are members of the UN. See Table 6 in the Appendix.

2 See Figure 7 in the Appendix for yearly percentage change from 2010 to 2020.

3 Data on COVID-19 cases were retrieved from the WHO Coronavirus dashboard available at https://covid19.who.int/table?tableChartType=heat, as at 16/09/21, 1.45 am Fiji Time. The totals and percentage shares and other summary measures were calculated by the author. See Tables 7 and 8 in the Appendix for the number of virus cases, deaths and percentage share of for each country in the sample.

4 The 13 countries with no COVID-19 cases (as at 16/09/21, 1.45 am Fiji Time) are American Samoa, Cook Islands, Democratic People's Republic of Korea, Kiribati, Micronesia, Nauru, Niue, Pitcairn Islands, Saint Helena, Tokelau, Tonga, Turkmenistan and Tuvalu.

5 Guyana is identified as an outlier and removed from our analysis. Due to missing data for some variables, the sample size in the various estimations reported in Tables 4 and 5 varies.

6 Due to the sharp fluctuations in remittances and natural resource rents in the most recent years, the three-year average values were taken for these variables so that it better reflects the natural resource and remittances dependency of the respective economies.

7 While tourism's share in exports, GDP and unemployment are used as indicators of tourism dependency, there is no international benchmark to categorize economies as tourism-dependent and non-dependent. Mooney and Zegarra (2020) developed a tourism dependency index for a sample of Latin American and Caribbean countries and their results indicated that economies that had approximately more than 20 percent share of tourism in key economic indicators contributed more to their tourism dependency index.

8 The residual diagnostic tests (Breusch-Pagan-Godfrey tests for heteroscedasticity and the Jarque-Bera normality tests) were performed for models 1–8. The results, presented in Table 9 in the Appendix indicate that the errors are homoscedastic and normally distributed in all models.