Tourist arrivals in Korea: Hallyu as a pull factor

Abstract

Econometric modelling on tourist arrivals has concentrated mostly on forecasting. We abstract and assess the impact on arrivals to Korea from China, Hong Kong, Indonesia, Japan, Taiwan, Singapore and Malaysia using a number of macroeconomics variables (unemployment, inflation, GDP and exchange rate) sentiment, mood and most importantly ‘Hallyu’ (Korean cultural wave) which is quantified for the very first time. Effectively, we test how each variable ‘measures up’ against all other variables. Our analysis is twofold. Firstly, we use impulse response functions to assess the risk, magnitude and duration that each shock has on short-term arrivals from each country separately. Secondly, we concentrate on systemic effects and use causality tests to examine the effect of each variable on arrivals for all countries simultaneously. We find that the effect of our variables is not uniform but most importantly that ‘Hallyu’ cannot be ignored.

Keywords:

• tourist arrivals
• macroeconomic shocks
• ‘Hallyu’ quantification
• impulse response functions
• Dumitrescu–Hurlin causality

Notes

1 In their paper, they make a distinction between mood and sentiment, as we do.

2 For example, if there is a one-way causal relationship running from exchange rate to visitors, then it is in the interest of the Korean authorities to keep the Korean Won as low as possible to reinforce tourism. Country-specific regressions or IRFs may provide different results for the effect of a cheap Won on visitors from different countries but causalities for all countries will help Korean authorities determine and pursue a basic strategy.

3 The index is based on six dimensions one of which is tourism.

4 Perhaps the Korean authorities should consider resurrecting the presidential council on nation branding which does not exist anymore.

5 GDP is available quarterly. In order to include it in our sample which is monthly, we divide changes in GDP equally between the 3 months in each period.

6 We are not aware of Hallyu-type phenomena in other countries but if present somewhere else besides Korea, new research could assess the impact of such phenomena on each country separately as well as simultaneously following the techniques applied here.