## UNLOCKING TOURISM POTENTIAL FOR SUSTAINABLE AND INCLUSIVE GROWTH IN DOMINICA

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### A. The Tourism Sector Landscape in Dominica
- Direct contribution of tourism to output: 12.2 percent of GDP in 2019.
- Tourism employment (direct): about 10.5 percent of total employment.
- Broader contribution (including connected sectors): estimated at about a third of economic output (WTTC 2022, 2023).
- Tourism exports historically larger than exports of goods (except during the pandemic).
- Origin of stay-over visitors (2019):
  - Caribbean region: 61.2 percent (French West Indies 25.5%, Commonwealth Caribbean 17.8%, rest of Caribbean 17.8%).
  - US: 14.0 percent.
  - France: 7.7 percent.
  - U.K.: 5.7 percent.
  - Canada: 2.9 percent.
- Market share dynamics:
  - Share of Caribbean market in total visitor arrivals decreased in favor of the US since 2019; post-2019 observation: Caribbean arrivals represent 48 percent of total arrivals.
- Visitor type and spending (2019):
  - Cruise ship arrivals: 72 percent of total arrivals; contributed around 6.3 percent of total tourism expenditure.
  - Average spending: cruise ship passengers spent EC$87 in 2019 vs. EC$3323 for stayover visitors.
  - Majority of cruise passengers stayed for less than one day.
  - Leisure visitors were eight times more numerous than business visitors; per-person spending of business visitors was six times higher than per-person spending of leisure visitors.
- Structural constraints noted:
  - Poor flight connectivity (worsened since the pandemic).
  - Small airport capacity.
  - Reduced hotel supply legacy from hurricane Maria.
  - High energy costs.
  - Heavy reliance on cruise arrivals.

### B. Assessing the Post-Pandemic Tourism Recovery
- Pandemic impact on tourism sector (2020):
  - Output in tourism sector contracted by 54 percent in 2020.
  - Employment in tourism sector contracted by 24 percent in 2020.
  - Direct contribution to real GDP drop: 3.9 percentage points in 2020.
- Recovery pattern:
  - Tourist arrivals gradually recovered during 2021 and 2022, especially in late-2022 with relaxation of quarantine and resuming of national festivities.
  - As of December 2022, Dominica's tourist arrivals were around 70 percent of the level in December 2019 (second lowest among ECCU countries); the average of ECCU and Grenada reached 80 percent.
- Factors explored for slower recovery:
  - Flight connectivity: pandemic disrupted flights, particularly intra-regional; change in number of flights to Dominica since late 2019 comparable to ECCU average — likely not the main driver of slower recovery.
  - Cost of stay: overall cost of vacationing in Dominica has trended up since COVID-19; cost of staying in Dominica is much higher than the ECCU average — candidate determinant of underperformance.
  - Global demand and lockdown restrictions:
    - Demand proxy (weighted average of tourists' income) is strongly associated with stayover and cruise arrivals.
    - Oxford COVID-19 Government Response stringency index used as proxy for pandemic-related restrictions.
    - Before October 2021 (Phase 1), Dominica’s stringency index was much lower than the Caribbean average; after November 2021 (Phase 2), it became higher than the Caribbean average.
    - Phase 1: foreigners refrained from traveling due to health concerns despite low domestic stringency.
    - Phase 2: rebound in global demand but stricter local quarantine measures in Dominica following surge in local cases hindered recovery.

### C. Key Challenges — Determinants of Tourism Flows
- Longstanding pre-pandemic hurdles:
  - Low flight connectivity.
  - Small stock of hotel rooms.
  - Heavy reliance on cruise arrivals.
  - High energy costs.
- Econometric approach:
  - Fixed-effects model estimated on sample of 17 Caribbean countries over 13 years (2010–2022).
  - Dependent variable: stay-over tourist arrivals.
  - Country-time determinants: flight capacity, supply of hotel rooms, cost of staying.
  - Time-varying cross-country determinants: global GDP growth and time effects (to account for the pandemic).
- Main empirical findings (coefficients in b/p; p-values in parentheses; significance: * p<0.10, ** p<0.05, *** p<0.01):
  - Flight Capacity:
    - Model 1: 0.317*** (0.00)
    - Model 2: 0.536*** (0.00)
    - Model 3: 0.373*** (0.00)
    - Model 4: 0.359*** (0.00)
    - Interpretation: a 1 percent increase in flight capacity leads to a close to or more than 0.3 percent increase in stayover tourist arrivals.
  - Hotel rooms:
    - Model 1: 0.071 (0.53)
    - Model 2: -0.045 (0.91)
    - Model 3: 0.068 (0.54)
    - Model 4: 0.544*** (0.00)
  - Demand variables:
    - US GDP growth:
      - Model 1: 0.064*** (0.00)
      - Model 2: 0.054** (0.02)
      - Text interpretation from source: Model 1 suggests a 1 percentage point increase in US GDP growth leads to a 10% increase in tourist arrivals (coefficient reported as 0.064***).
    - Weighted Tourist Income:
      - Model 3: 4.061*** (0.00)
      - Text interpretation: Model 3 suggests that 1 percent increase in weighted tourist income leads to a 4.1 percent increase in arrivals.
    - World GDP growth:
      - Model 4: 0.087*** (0.00)
  - Covid (pandemic dummy):
    - Model 1: -0.526*** (0.00)
    - Model 2: -0.487*** (0.00)
    - Model 3: -0.575*** (0.00)
    - Model 4: -0.549*** (0.00)
    - Interpretation: COVID-19 had a significant negative impact on tourism arrivals.
  - Week at the Beach Index (cost of stay):
    - Model 3: 0.367 (0.12)
    - Model 4: 0.198 (0.24)
    - Text interpretation: no robust evidence that cost of stay (Week at the Beach Index) is a determining driver of tourist arrivals — suggesting price inelasticity of tourism demand within the Caribbean in the short run.
  - Model fit:
    - Observations: Model 1: 193; Model 2: 89; Model 3: 180; Model 4: 89.
    - R-sqr within: Model 1: 0.425; Model 2: 0.481; Model 3: 0.476; Model 4: 0.525.
    - R-sqr overall: Model 1: 0.680; Model 2: 0.810; Model 3: 0.616; Model 4: 0.904.
- Natural disaster impacts:
  - Historical context: at least sixty-six episodes hit ECCU countries since 1979; seventeen events led to total damage exceeding 5 percent of GDP (EM-DAT database).
  - Country examples and damages:
    - Tropical storm Erika in 2015 and hurricane Maria in 2017 caused significant destruction in Dominica; source text reference: "over 300 percent output loss".
    - Footnote reporting for the two recent Dominica disasters: 89 percent of GDP for tropical storm Erika in 2015 and 279 percent of GDP for hurricane Maria in 2017.
  - Local projection results on tourism arrivals following a natural disaster:
    - Number of tourist arrivals declined by more than 20 percent on average 2 months after the natural disaster; negative impact persisted at least 5 months on average.
    - For extreme disasters (damage ≥ 5 percent of GDP), effects are larger and more persistent: arrivals almost cut in half after 2 months and negative impact persisted 8 months after the event.
    - Interpretation: natural disasters have a scaring effect on tourism that may not be reversed over an extended period.

### D. Concluding Remarks and Policy Implications
- Role of the sector:
  - Tourism contributes significantly to growth, employment, and exports in Dominica.
  - Stay-over visitors, though smaller in number, generate disproportionally larger tourism expenditures.
  - Most stay-over visitors originate from other Caribbean countries, followed by the US, France, the U.K., and Canada.
- Drivers of performance:
  - Flight connectivity and demand variables are key drivers of tourism performance.
  - Natural disasters have negative and potentially lasting impacts on tourism.
  - The COVID-19 pandemic significantly disrupted tourism, with Dominica’s recovery slower than peers—underperformance largely explained by costs of stay and timing of lockdown restrictions.
- Policy recommendations (as presented in source):
  - Expand airlift capacity, including by strengthening intra-regional collaboration.
  - Invest in digital and resilient physical infrastructure.
  - Enhance competitiveness and reduce vulnerabilities by investing in the expansion of skilled labor supply for the sector.
  - Diversify product offers to attract more stayover arrivals and reduce reliance on cruise passengers.

### Data sources and notes
- "Week at the Beach" — IMF staff calculations
- Natural disasters — The International Disaster database (EMDAT)

### References (selected in source)
- Jordà, Ò. 2005a. “Estimation and Inference of Impulse Responses by Local Projections.” American Economic Review 95 (1): 161–82.
- Martin, K., and P. Abraham Jr. 2017. “What is Driving Tourism Flows to the ECCU? Insights from a Gravity Model.” ECCB Working Paper. No: 01/21.
- Teulings, C. N., and N. Zubanov. 2014. “Is Economic Recovery a Myth? Robust Estimation of Impulse Responses.” Journal of Applied Econometrics 29 (3): 497–514.
- WTTC 2022, Dominica 2022 Annual Research: Key Highlights, World Travel and Tourism Council.
- WTTC 2023, Travel & Tourism in the Caribbean Prospect for Growth, World Travel & Tourism Council.

*Source: IMF Country Report No. 23/247, Selected Issues (May 18, 2023).*

### Section 1

### UNLOCKING TOURISM POTENTIAL FOR SUSTAINABLE AND INCLUSIVE GROWTH IN DOMINICA

### A. The Tourism Sector Landscape in Dominica
- Direct contribution of tourism to output: 12.2 percent of GDP in 2019.
- Tourism employment (direct): about 10.5 percent of total employment.
- Broader contribution (including connected sectors): estimated at about a third of economic output (WTTC 2022, 2023).
- Tourism exports historically larger than exports of goods (except during the pandemic).
- Origin of stay-over visitors (2019):
  - Caribbean region: 61.2 percent (French West Indies 25.5%, Commonwealth Caribbean 17.8%, rest of Caribbean 17.8%).
  - US: 14.0 percent.
  - France: 7.7 percent.
  - U.K.: 5.7 percent.
  - Canada: 2.9 percent.
- Market share dynamics: share of Caribbean market in total visitor arrivals decreased in favor of the US since 2019; still, Caribbean arrivals represent 48 percent of total arrivals (post-2019 observation).
- Visitor type and spending (2019):
  - Cruise ship arrivals: 72 percent of total arrivals; contributed around 6.3 percent of total tourism expenditure.
  - Average spending: cruise ship passengers spent EC$87 in 2019 vs. EC$3323 for stayover visitors.
  - Majority of cruise passengers stayed for less than one day.
  - Leisure visitors were eight times more numerous than business visitors; per-person spending of business visitors was six times higher than per-person spending of leisure visitors.
- Structural constraints noted: poor flight connectivity (worsened since the pandemic), small airport capacity, reduced hotel supply legacy from hurricane Maria, high energy costs, heavy reliance on cruise arrivals.

### B. Assessing the Post-Pandemic Tourism Recovery
- Pandemic impact on tourism sector (2020):
  - Output in tourism sector contracted by 54 percent in 2020.
  - Employment in tourism sector contracted by 24 percent in 2020.
  - Direct contribution to real GDP drop: 3.9 percentage points in 2020.
- Recovery pattern:
  - Tourist arrivals gradually recovered during 2021 and 2022, especially in late-2022 with relaxation of quarantine and resuming of national festivities.
  - As of December 2022, Dominica's tourist arrivals were around 70 percent of the level in December 2019 (second lowest among ECCU countries); the average of ECCU and Grenada reached 80 percent.
- Factors explored for slower recovery:
  - Flight connectivity: pandemic disrupted flights, particularly intra-regional; change in number of flights to Dominica since late 2019 comparable to ECCU average — likely not the main driver of slower recovery.
  - Cost of stay: overall cost of vacationing in Dominica has trended up since COVID-19; cost of staying in Dominica is much higher than the ECCU average — candidate determinant of underperformance.
  - Global demand and lockdown restrictions:
    - Demand proxy (weighted average of tourists' income) is strongly associated with stayover and cruise arrivals.
    - Oxford COVID-19 Government Response stringency index used as proxy for pandemic-related restrictions.
    - Before October 2021 (Phase 1), Dominica’s stringency index was much lower than the Caribbean average; after November 2021 (Phase 2), it became higher than the Caribbean average.
    - Phase 1: foreigners refrained from traveling due to health concerns despite low domestic stringency.
    - Phase 2: rebound in global demand but stricter local quarantine measures in Dominica following surge in local cases hindered recovery.

### C. Key Challenges — Determinants of Tourism Flows
- Longstanding pre-pandemic hurdles: low flight connectivity, small stock of hotel rooms, heavy reliance on cruise arrivals, high energy costs.
- Econometric approach:
  - Fixed-effects model estimated on sample of 17 Caribbean countries over 13 years (2010–2022).
  - Dependent variable: stay-over tourist arrivals.
  - Country-time determinants: flight capacity, supply of hotel rooms, cost of staying.
  - Time-varying cross-country determinants: global GDP growth and time effects (to account for the pandemic).
- Main empirical findings (Table 1 results; coefficients are in b/p; p-values in parentheses; significance: * p<0.10, ** p<0.05, *** p<0.01):
  - Flight Capacity:
    - Model 1: 0.317*** (0.00)
    - Model 2: 0.536*** (0.00)
    - Model 3: 0.373*** (0.00)
    - Model 4: 0.359*** (0.00)
    - Interpretation in text: a 1 percent increase in flight capacity leads to a close to or more than 0.3 percent increase in stayover tourist arrivals.
  - Hotel rooms:
    - Model 1: 0.071 (0.53)
    - Model 2: -0.045 (0.91)
    - Model 3: 0.068 (0.54)
    - Model 4: 0.544*** (0.00)
  - Demand variables:
    - US GDP growth:
      - Model 1: 0.064*** (0.00)
      - Model 2: 0.054** (0.02)
      - Text interpretation: Model 1 suggests a 1 percentage point increase in US GDP growth leads to a 10% increase in tourist arrivals (coefficient reported as 0.064***; textual elasticity statement preserved from source).
    - Weighted Tourist Income:
      - Model 3: 4.061*** (0.00)
      - Text interpretation: Model 3 suggests that 1 percent increase in weighted tourist income leads to a 4.1 percent increase in arrivals.
    - World GDP growth:
      - Model 4: 0.087*** (0.00)
  - Covid (pandemic dummy):
    - Model 1: -0.526*** (0.00)
    - Model 2: -0.487*** (0.00)
    - Model 3: -0.575*** (0.00)
    - Model 4: -0.549*** (0.00)
    - Interpretation: COVID-19 had a significant negative impact on tourism arrivals.
  - Week at the Beach Index (cost of stay):
    - Model 3: 0.367 (0.12)
    - Model 4: 0.198 (0.24)
    - Text interpretation: no robust evidence that cost of stay (Weak at the Beach Index) is a determining driver of tourist arrivals — suggesting price inelasticity of tourism demand within the Caribbean in the short run.
  - Model fit:
    - Observations: Model 1: 193; Model 2: 89; Model 3: 180; Model 4: 89.
    - R-sqr within: Model 1: 0.425; Model 2: 0.481; Model 3: 0.476; Model 4: 0.525.
    - R-sqr overall: Model 1: 0.680; Model 2: 0.810; Model 3: 0.616; Model 4: 0.904.
- Natural disaster impacts:
  - Historical context: at least sixty-six episodes hit ECCU countries since 1979; seventeen events led to total damage exceeding 5 percent of GDP (EM-DAT database).
  - Country examples and damages:
    - Tropical storm Erika in 2015 and hurricane Maria in 2017 caused significant destruction in Dominica; reference in text: "over 300 percent output loss" (statement in source).
    - Footnote reporting for the two recent Dominica disasters: 89 percent of GDP for tropical storm Erika in 2015 and 279 percent of GDP for hurricane Maria in 2017.
  - Local projection results on tourism arrivals following a natural disaster:
    - Number of tourist arrivals declined by more than 20 percent on average 2 months after the natural disaster; negative impact persisted at least 5 months on average.
    - For extreme disasters (damage ≥ 5 percent of GDP), effects are larger and more persistent: arrivals almost cut in half after 2 months and negative impact persisted 8 months after the event.
    - Interpretation: natural disasters have a scaring effect on tourism that may not be reversed over an extended period.

### D. Concluding Remarks and Policy Implications
- Summary of sector role:
  - Tourism contributes significantly to growth, employment, and exports in Dominica.
  - Stay-over visitors, though smaller in number, generate disproportionally larger tourism expenditures.
  - Most stay-over visitors originate from other Caribbean countries, followed by the US, France, the U.K., and Canada.
- Drivers of performance:
  - Flight connectivity and demand variables are key drivers of tourism performance.
  - Natural disasters have negative and potentially lasting impacts on tourism.
  - The COVID-19 pandemic significantly disrupted tourism, with Dominica’s recovery slower than peers—underperformance largely explained by costs of stay and timing of lockdown restrictions.
- Policy recommendations (as presented in source):
  - Expand airlift capacity, including by strengthening intra-regional collaboration.
  - Invest in digital and resilient physical infrastructure.
  - Enhance competitiveness and reduce vulnerabilities by investing in the expansion of skilled labor supply for the sector.
  - Diversify product offers to attract more stayover arrivals and reduce reliance on cruise passengers.

*Source: IMF Country Report No. 23/247, Selected Issues (May 18, 2023).*

### Section 2

### 1dmaea2023002 - Section 2

### Data sources and notes
- "Week at the Beach" — IMF staff calculations
- Natural disasters — The International Disaster database (EMDAT)
- DOMINICA
- INTERNATIONAL MONETARY FUND 13

### References
- Jordà, Ò. 2005a. “Estimation and Inference of Impulse Responses by Local Projections.” American Economic Review 95 (1): 161–82.
- Martin, K., and P. Abraham Jr. 2017. “What is Driving Tourism Flows to the ECCU? Insights from a Gravity Model.” ECCB Working Paper. No: 01/21.
- Teulings, C. N., and N. Zubanov. 2014. “Is Economic Recovery a Myth? Robust Estimation of Impulse Responses.” Journal of Applied Econometrics 29 (3): 497–514.
- WTTC 2022, Dominica 2022 Annual Research: Key Highlights, World Travel and Tourism Council.
- WTTC 2023, Travel & Tourism in the Caribbean Prospect for Growth, World Travel & Tourism Council.

*Source: 1dmaea2023002 - Section 2 (PDF).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1dmaea2023002.pdf_