## Unlocking Tourism Potential for Sustainable and Inclusive Growth in Dominica

## Source details

**Canonical URL:** [Unlocking Tourism Potential for Sustainable and Inclusive Growth in Dominica](https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023061.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023061.pdf.md)
- [Structured JSON version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023061.pdf.json)

---

### The tourism sector landscape in Dominica
- Direct contribution of tourism to output: 12.2 percent of GDP in 2019.
- Direct employment in tourism: about 10.5 percent of total employment.
- Broader sector weight (including connected sectors): about a third of economic output (WTTC 2022, 2023).
- Tourism exports historically much larger than goods exports (pre-pandemic).
- Origin of stay-over visitors (2019): Caribbean 61.2 percent, US 14.0 percent, France 7.7 percent, U.K. 5.7 percent, Canada 2.9 percent.
- Market structure and capacity constraints:
  - High reliance on cruise arrivals: cruise ship arrivals accounted for 72 percent of total arrivals in 2019.
  - Per-visitor spending (2019): cruise ship passengers EC$87; stayover visitors EC$3323.
  - Majority of cruise passengers stayed for less than one day.
- Leisure vs. business visitors (2019): leisure visitors were eight times more numerous than business visitors; per‑person spending of business visitors was six times higher than leisure visitors.

### Assessing the post-pandemic tourism recovery
- COVID-19 impacts on the sector (2020):
  - Output in the tourism sector contracted by 54 percent in 2020.
  - Employment in the tourism sector contracted by 24 percent in 2020.
  - Direct contribution to GDP decline: drop of 3.9 percentage points in real GDP in 2020, driven by tourism.
- Recovery pattern:
  - Tourist arrivals gradually recovered during 2021 and 2022, with a stronger pickup in late-2022 after quarantine relaxation and resumption of festivities.
  - As of December 2022, Dominica’s tourist arrivals were around 70 percent of the level in December 2019; the average of ECCU and Grenada reached 80 percent.
- Factors examined for slower recovery:
  - Flight connectivity: pandemic-related disruption in flights, but change in number of flights since late 2019 comparable to ECCU average; flight capacity remains an important determinant generally.
  - Cost of stay: overall cost of vacationing in Dominica trended up since the outbreak of Covid-19 and is higher than ECCU average; could deter recovery.
  - Global demand and lockdown timing: weighted tourist‑income/demand strongly associated with arrivals; Dominica had later tightening and then stricter quarantine measures after November 2021, contributing to delayed recovery.

### Key determinants of tourism flows — econometric findings
- Empirical approach: country fixed-effects model on a sample of 17 Caribbean countries over 2010–2022; four specifications.
- Flight capacity:
  - Estimated elasticity: a 1 percent increase in flight capacity leads to close to or more than 0.3 percent increase in stayover tourist arrivals.
  - Table 1 coefficients (selected):
    - Flight Capacity: Model 1 = 0.317*** (p-value 0.00); Model 2 = 0.536*** (0.00); Model 3 = 0.373*** (0.00); Model 4 = 0.359*** (0.00).
- Hotel rooms:
  - Coefficients mixed across specifications: 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). Model 1 interpretation: 1 percentage point increase in US GDP growth leads to a 10% increase in tourist arrivals (model-specific interpretation noted in text).
  - Weighted Tourist Income (Model 3): 4.061*** (0.00). Model 3 interpretation: 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-19 indicator:
  - COVID coefficient: Model 1 = -0.526*** (0.00); Model 2 = -0.487*** (0.00); Model 3 = -0.575*** (0.00); Model 4 = -0.549*** (0.00).
- Price sensitivity:
  - Week at the Beach Index (cost of stay) not statistically significant in main specifications: coefficients reported 0.367 (0.12) and 0.198 (0.24) in two models.
  - Text conclusion: no evidence that cost of stay is a determining driver of tourist arrivals in the short run; suggests price inelasticity within the Caribbean.
- Model fit and data:
  - Observations: Model 1 = 193; Model 2 = 89; Model 3 = 180; Model 4 = 89.
  - R-sqr within: 0.425, 0.481, 0.476, 0.525 (Models 1–4 respectively).
  - R-sqr overall: 0.680, 0.810, 0.616, 0.904 (Models 1–4 respectively).
  - Data sources: WEO, Caribbean Tourism Organization, U.S. Department of Transportation, and IMF staff calculations. All variables log‑transformed except GDP growth. p-values in parenthesis; significance: * p<0.10, ** p<0.05, *** p<0.01.

### Impact of natural disasters on tourism
- Historical exposure: at least sixty-six disaster episodes hit ECCU countries since 1979; seventeen events led to total damage exceeding 5 percent of GDP.
- Notable Dominica disasters and damages:
  - Tropical storm Erika (2015): damage in Dominica of 89 percent of GDP (footnote).
  - Hurricane Maria (2017): damage in Dominica of 279 percent of GDP (footnote).
  - Text reference to earlier language: storms and hurricanes "led to significant economic damage (over 300 percent output loss)" — reflecting severe cumulative impacts described in the source.
- Local projection results on tourist arrivals after disasters:
  - On average, tourist arrivals declined by more than 20 percent two months after a natural disaster, with negative impacts persisting at least 5 months.
  - For extreme disasters (total damage of at least 5 percent of GDP), effects are larger and more persistent: arrivals almost cut in half after 2 months and negative impact persisted even 8 months after the event.
  - Interpretation: natural disasters produce a scarring effect on tourism that may not reverse quickly.

### Concluding remarks and policy recommendations
- Role of tourism:
  - Tourism is vital for Dominica’s growth, employment, and exports, with stayover visitors generating disproportionate tourism expenditures.
- Key drivers and vulnerabilities:
  - Flight connectivity and demand variables are key drivers of tourism performance.
  - Natural disasters have negative and potentially long-lasting impacts.
  - Structural constraints include low flight connectivity, small hotel room stock, high reliance on cruise arrivals, and high energy costs.
- Policy recommendations (from analysis and concluding text):
  - Expand airlift capacity, including strengthening intra-regional collaboration.
  - Invest in digital and resilient physical infrastructure to improve connectivity and resilience.
  - Enhance competitiveness by investing in expansion of skilled labor supply for the sector.
  - Diversify tourism product offerings to reduce reliance on cruise arrivals and increase stayover visitors.
  - Strengthen disaster resilience to mitigate scarring effects from extreme weather events.

*Italic: Prepared by Yibin Mu, Sinem Kilic Celik, and Archit Singhal; Unlocking Tourism Potential for Sustainable and Inclusive Growth in Dominica (SIP/2023/061); based on IMF staff paper completed on May 18, 2023.*

---


_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023061.pdf_