The role of financial and epidemic crises on tourism loyalty

ABSTRACT

This paper examines the role of financial and epidemic crises on tourism loyalty. Using monthly data from January 1978 to February 2016, our analysis shows that tourists arriving to Singapore from 11 countries (Australia, Canada, China, France, Germany, Hong Kong, India, Japan, Taiwan, the UK, and the US) exhibit evidence of tourism loyalty, suggesting that international tourists considered Singapore as a long-run attractive tourist destination. During the five subsample periods, representing the four most recent global financial and epidemic crises (the AFC, SARS, the GFC and H1-N1), we find evidence of transitory effect, suggesting that international tourists considered Singapore as an attractive tourism destination in the short-run. We argue that shocks generated by the financial and epidemic crises strongly contribute to the existence of the permanent loyalty evidence, and that such evidence is likely to be spurious.

KEYWORDS:

• Tourism loyalty
• financial crises
• epidemic crises
• tourist arrivals
• Singapore

JEL Classification:

• C10
• C58
• G1
• I1
• Z32
• Z38

Disclosure statement

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

Notes

1 The AFC started in July 1997 and created fear and economic downturns due to financial contagion. It severely affected East Asian countries throughout a sequence of currency devaluations (Lean & Smyth, 2009). The currency markets first failed in Thailand because of the government's decision to no longer follow the fixed exchange rate regime of its local currency with the U.S, creating a severe depreciation in Thai Baht. The depreciation of Thai Baht spread quickly throughout the Southeast Asian region, and in turn causing stock market crisis, reduce import revenues, a decline in tourist receipt, and lack of government control.

2 Balalia and Petrescu (2011) and Smeral (2009) pointed out that the GFC caused a decline in exports and industrial production, an increase in unemployment and in consumer confidence. The GFC affected tourism industry at global level, manifesting its influences through a decline in tourism expenditures and number of arrivals (Smeral, 2009).

3 SARS disease refers to a viral respiratory disease of zoonotic origin caused by the SARS coronavirus. This disease results from a potentially fatal virus that severely affected Southeast Asian countries in early 2003. More than 8000 cases were reported, causing the death of more than 750 people around the world.

4 The H1-N1 disease had a negative impact on world economies as well as on the Singapore tourism industry (STB, 2009). In 2009, H1-N1 emerged and spread to countries around the world, including Singapore.

5 Mandelbrot (1977) argued that long memory is present if shocks in a time series last for a long time, then diminishing gradually in the long run (i.e. it is also termed as a mean-reverting, or transitory process, i.e. d < 1). If the effect of shocks lasts forever (i.e. d=1 or maybe more than 1), then long memory is considered permanent, indicating that the tourism market is regarded as a long-term destination; thus, tourists are regarded as highly loyal to the tourism destination.

6 The test statistic for the KPSS test statistic, which is a parametric test, can be found in Giraitis et al. (2003) in page 269.