## _wp08162 — Descriptive Statistics of Caribbean Tourism

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---

### Study objective, context, and methodology
- Objective:
  - Estimate the impact on the Caribbean of normalizing bilateral tourism trade between the U.S. and Cuba.
- Context:
  - The Caribbean described as "a unique natural experiment for trade" given diverse nationalities, languages, races, political and colonial histories with comparable endowments.
  - Policy changes and shocks cited: U.S. passport mandate, EU preference erosion for banana and sugar exports; media reports on regional concerns (e.g., Jamaica Observer (2003), Reuters (2007), Castro (1995)).
- Methodology:
  - Counterfactual shaped by a gravity trade model of the Caribbean tourism industry, grounded in consumer optimization across differentiated international products.
  - Gravity model follows standard specifications (Anderson and Van Wincoop (2001); Baldwin and Taglioni (2006)) with extensions for trade regimes, energy arrangements, market concentration, hurricanes, and airline access.
  - Tourist arrivals also modeled as a mixed Brownian motion with a Poisson jump process (consistent with Cukierman (1980) and Bernanke (1983)); jump mean arrival rate denoted λ and duration of embargo summarized by 1/λ years.
  - Estimations anchored on macroeconomic, industry, and socio-economic data from international sources to minimize Cuba-specific uncertainty.

### Model fit, data coverage, and capacity indicators
- Data and coverage:
  - Thirty-three Caribbean destinations receiving tourists from 21 OECD countries for 1995–2004.
  - OECD source countries listed include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, U.K., U.S.A.
- Model performance:
  - Gravity model explains 85 percent of the observed variation in tourism arrivals from 21 OECD countries across 33 Caribbean destinations over ten years.
  - Estimated coefficients remain broadly constant across specifications.
- Capacity and short-run constraints:
  - In 2004, average for large Caribbean destinations was 55 visitors per room.
  - Cuba in 2004 recorded 30 visitors per room.
  - Current hotel-room figure cited: fifty-thousand hotel rooms.
  - Conservative assumption: Cuba can raise utilization to the regional average implying capacity for almost double current visitors.

### Major quantitative findings and projections
- Overall Caribbean arrivals:
  - A future liberalization of Cuba-U.S. bilateral tourism would increase overall arrivals to the Caribbean.
  - Total Caribbean arrivals would increase by approximately 2–11 percent.
  - Model projects an overall regional increase of 2.4–11 percent; one summary states "an increase of roughly 10 percent."
- Cuba-specific projections:
  - All fitted models project between 3–3.5 million U.S. tourists would enter Cuba absent the estimated embargo coefficient.
  - Model projections consistently indicate approximately 3 million U.S. arrivals to Cuba in the hypothetical unrestricted scenario.
  - Long-run projected visitors to Cuba: 3.6 million annual.
  - Excess demand cited of 500,000 tourists.
  - Hotel capacity required: roughly 10,000 new hotel rooms in Cuba to accommodate the 3.6 million annual projected visitors.
  - Estimated construction cost per room: US$300,000 per room.
  - Estimated investment to accommodate projected demand in Cuba: US$3 billion.
  - HVS International ranges for per-room costs (2004 and 2005): Full-Service Hotels and Luxury Hotels range from (thousands) US$77.1–339.7 and US$343.5–1,406.5, respectively.
- Redistribution and long-run composition:
  - Long-run shift toward a larger U.S. tourist presence: U.S. visitors would make up between one half and three-quarters of arrivals to most destinations in the long-run.
  - Cuba and Belize projected for strong growth; Cuba would become the largest destination for U.S. tourists in the Caribbean (not including Puerto Rico).
  - Travel-cost proxy: tourist-mile used; cost to U.S. consumers of traveling to Cuba is estimated to be at least 7,000 nautical miles under current restrictions.

### Determinants of long-run tourism equilibrium
- Geography and travel costs:
  - Distance serves as an excellent proxy for trade costs; non-linear jumps exist across continents.
  - Using tourist-mile as a cost proxy, the cost to U.S. consumers of traveling to Cuba is estimated equivalent to traveling to Oceania under current restriction.
- Language, colonial history, and specialization:
  - Common languages and colonial ties major determinants of costs and spillovers.
  - Dependence on European tourism lowers overall arrivals, but if 40 percent of total arrivals are European this loss is partly offset by economies of scale (Europeans tend to visit in masses).
- Trade regimes and energy:
  - NAFTA has a substantial positive effect on tourism; U.S. Caribbean Basin Initiative (U.S.CBI) has a smaller but positive effect.
  - CARICOM membership is negligible if not detrimental to tourism arrivals.
  - Receiving oil through PetroCaribe and the Caracas accords benefits tourism arrivals more than producing oil.
- Industrial organization and airlines:
  - Evidence supports moderate market concentration in the Caribbean; Herfindahl index about 0.1 in 2000.
  - Larger destinations concentrate tourism arrivals and reduce overall regional intake, consistent with monopolistic behavior.
  - No robust evidence that nationally-owned Caribbean flag carriers flying into OECD countries significantly increase tourism arrivals relative to destinations without such carriers.

### Natural disasters, resilience, and recovery
- Hurricanes:
  - Impact on tourism in the year following a hurricane is uneven; some countries improve relative to neighbors where the hurricane did not land.
  - Larger islands and countries with favorable international building code survey results fare better post-hurricane.
  - Hurricanes trigger official and private capital inflows, force upgrades, and encourage new tourism projects.
- Building codes:
  - International Wind Code Evaluation studies (2003) judged Cuba and the Dominican Republic building codes as state of the art; many Eastern Caribbean and CARICOM codes were judged outdated.
  - Hurricanes can prompt public and private sector refurbishments and enhanced investment in tourism infrastructure.

### Scenarios for normalization and distributional outcomes
- Four distributional scenarios (averaged on 2003–04 arrivals):
  - Scenario A (benign): All U.S. arrivals to Cuba are entirely new tourists to the Caribbean; non-U.S. visitors in Cuba redistribute regionally. Outcome: every country does at least as well as current; Cuba, Dominican Republic, Guadeloupe, Martinique, and most British Overseas Territories gain arrivals.
  - Scenario B: All U.S. arrivals to Cuba come entirely from existing U.S. tourists in the Caribbean (lost U.S. arrivals for competing destinations; non-U.S. visitors in Cuba redistribute). Clear winners: Dominican Republic, Guadeloupe, Martinique, Barbados. Heavy U.S.-dependent destinations (e.g., Cancun, the Bahamas, Jamaica, Aruba) show largest losses.
  - Scenario C (mixed): 1/3 new to the region and 2/3 diverted from existing destinations (Padilla and McElroy (2003) midpoint). Outcome intermediate between A and B; some British or Dutch overseas territories reverse losses relative to B.
  - Scenario D (gravity-model long-run projection): Fitted gravity estimates summed across OECD sources. Outcome: overall increase in regional arrivals of 2.4–11 percent; long-run U.S. share between one half and three-quarters for most destinations.
- Redistribution dynamics:
  - Cuba retains about 20 percent of its non-U.S. tourists after opening and overall arrivals to Cuba more than double in modeled scenarios.
  - Binding capacity constraints in Cuba would likely displace current tourists as new U.S. arrivals compete for limited hotel rooms.
  - Puerto Rico assumed not to suffer U.S. tourist losses to a hypothetical Cuba-U.S. tourism liberalization.

### Identification of uncertainty and strategic hedging
- Timing uncertainty:
  - Jump in arrivals from normalization captured by Poisson jump process; mean arrival rate λ, embargo duration summarized by 1/λ years.
- Hedging strategy implications:
  - If probability/timing of liberalization rises, Cuba should prepare for increases in U.S. tourists (and potential losses of Europeans); competing destinations should hedge toward non-U.S. tourists.
  - Optimal hedging away from potential U.S. tourist losses depends on uncertainty over arrival date of liberalization.
- Historical episodes:
  - Two periods identified: 1996–97 (Helms-Burton tightening) and 1999–2000 (relaxation).
  - During 1999–2000, Cuba increased arrivals from culturally different countries in loosening episodes while competitors did not successfully hedge.

### Policy recommendations and strategic choices
- Diversification and market strategy:
  - Competitors heavily dependent on U.S. tourists should consider diversifying toward culturally different OECD markets as probability of liberalization rises.
  - Break up the value chain, specialize, and deliver customized services matching cultural and national preferences.
  - Hedging toward alternative tourist sources is important because U.S. visitor losses would occur on impact under many scenarios.
- Access and infrastructure:
  - Increase overall access to airlines (including charters); access to OECD airlines is important even though having a domestic airline shows no robust evidence of helping tourism.
  - Address capacity constraints in Cuba through new rooms and investment to manage displacement dynamics.
- Resilience and macro policy:
  - Strengthen building codes and hurricane preparedness; lower transaction costs; improve financial sector soundness and macro framework to cope with net capital inflows after storms.
  - Competition policy and capacity expansion strategies matter regionally given moderate market concentration (Herfindahl ≈ 0.1).
- Trade and energy policy:
  - Engagement with preferential energy arrangements (PetroCaribe, Caracas accords) and selective trade agreements (NAFTA effects) can influence arrivals.
- Further analysis:
  - A computational general equilibrium (CGE) benchmark could usefully complement the gravity-based first-pass given uncertainties about factor costs and elasticities.

*Source — content from the supplied PDF chapter/section _wp08162 (1995–2004 data and model results as described).*

### 1.     Descriptive Statistics of Caribbean Tourism .................................................................. 23

### 1.     Descriptive Statistics of Caribbean Tourism

### Introduction and study objective
- The study seeks to estimate the impact on the Caribbean of normalizing bilateral tourism trade between the U.S. and Cuba.
- The Caribbean is characterized as "a unique natural experiment for trade" due to "the kaleidoscope of nationalities, languages, races, political and colonial histories, coupled with what at first appears to be comparable endowments."
- Tourism is emphasized as important for the region’s economies and of interest to policymakers and academics.

### Context and motivating examples
- Policy changes and external shocks affecting travel have prompted concern in the region:
  - A recent passport mandate for U.S. travelers to the Caribbean "set off intense lobbying by the affected economies to stop a transitory cost asymmetry relative to Mexico."
  - The region raised concerns in response to "EU preference erosion for banana and sugar exports from their former Caribbean colonies."
- Media and policymaker attention to potential competitive effects from Cuba includes references to:
  - Jamaica Observer (2003) and Reuters (2007) reporting on regional concerns.
  - Castro (1995) addressing fears that "the development of tourism in Cuba...could harm tourism in the Caribbean, in Jamaica."

### Supply-shock scenario: opening U.S. tourism to Cuba
- Under a scenario of unrestricted U.S. tourist flows to Cuba:
  - The market would need to find a new equilibrium as "the largest consumer of tourism services in the region meets for the first time in nearly fifty years the region’s largest potential producer."
  - The current restriction is argued to provide "substantial trade protection" to some destinations; the U.S. Virgin Islands are cited as an example where costs of visiting Cuba are "very high" compared with "the perfect trade integration of the U.S. Virgin Islands."
  - As the dead weight loss from restrictions is lifted, "Caribbean vacations would be re-priced, based on fundamental costs, and new tourism consumption patterns would emerge across all destinations and visitor countries."

### Literature and gaps
- The trade literature is referenced for methodological inspiration, including work that "more tightly linked the workhorse gravity trade model to its empirical applications" resolving puzzles on why borders reduce trade.
  - Examples cited: Anderson and Van Wincoop (2001); Baldwin and Taglioni (2006).
- Previous work on the impact of liberalizing Cuba-U.S. tourism has not reached consensus:
  - Some forecasts draw on potentially unreliable data or on untested assumptions.
  - Padilla and McElroy (2003) project arrivals based on a comprehensive historical review (including evidence from the 1950s and industry surveys); these projections "appear plausible, but they are not tested econometrically."

### Empirical scope and data references (as presented)
- The chapter/section includes descriptive and empirical elements spanning topics such as:
  - Destination tourist base concentration.
  - OECD and Caribbean country groupings.
  - Hurricanes making landfall, 1995–2004.
  - Gravity estimates of Caribbean tourism and long-term adjustment.
  - Cuba: estimates of bilateral tourist arrivals.
  - Modeling and alternative estimates of U.S.-Cuba unrestricted tourism and projected arrivals.
- Figures and tables listed include time spans and themes such as "Top Five Clients of Caribbean Destinations, 1995–2004" and "Modeling of Tourist from the U.S.A."

*Source: _wp08162 - 1.     Descriptive Statistics of Caribbean Tourism (excerpt).*

### conclusions depend on qualitative evidence that is difficult to benchmark in the wake of a

### _wp08162 - conclusions depend on qualitative evidence that is difficult to benchmark in the wake of a

### Study design and methodology
- Shapes a liberalized Cuba-U.S. tourism counterfactual by estimating a gravity trade model of the Caribbean tourism industry.
- Gravity model grounded in consumer optimization across differentiated international products; explains upwards of 85 percent of the variation in the trade data used here.
- Estimations anchored on macroeconomic, industry, and socio-economic data from international sources to minimize Cuba-specific uncertainty.
- Model follows standard gravity specifications (Anderson and Van Wincoop (2001); Baldwin and Taglioni (2006)) with extensions to capture trade regimes, energy arrangements, market concentration, hurricanes, and airline access.
- Tourist arrivals also modeled as a mixed Brownian motion with a Poisson jump process (consistent with Cukierman (1980) and Bernanke (1983)) to capture sudden changes from a hypothetical Cuba-U.S. tourism liberalization.

### Major findings
- Overall Caribbean arrivals:
  - A future liberalization of Cuba-U.S. bilateral tourism would increase overall arrivals to the Caribbean.
  - Total Caribbean arrivals would increase by approximately 2–11 percent.
- Cuba-specific effects:
  - Liberalization would likely drive tourism in Cuba to full capacity; short-run supply constraints are uncertain.
  - As costs obey fundamentals in lieu of trade barriers, strong tourism growth would await some Caribbean destinations while others would potentially face long-term declines.
  - All fitted models project between 3–3.5 million U.S. tourists would enter Cuba absent the estimated embargo coefficient.
  - Model projections consistently indicate approximately 3 million U.S. arrivals to Cuba in the hypothetical unrestricted scenario.
- Redistribution effects:
  - As U.S. visitors overwhelm capacity in Cuba, OECD visitors currently vacationing in Cuba would be redirected toward neighboring countries.
  - Some countries would potentially lose U.S. tourists but gain new non-U.S. tourists as trade redistributes in line with fundamentals.
- Historical behavior under partial liberalization signals:
  - Cuba tends to retain non-U.S. visitors while preparing to receive increased U.S. arrivals.
  - Neighboring tourist destinations—particularly those heavily dependent on U.S. tourist arrivals—show no empirical evidence of hedging potential losses ahead of such change.

### Determinants of long-run tourism equilibrium (costs and fundamentals)
- Geography and distance:
  - Distance is an excellent proxy for trade costs; non-linear jumps in travel costs exist across continents.
  - Using tourist-mile as a cost proxy, the cost to U.S. consumers of traveling to Cuba is estimated to be equivalent to traveling to Oceania under the current restriction.
- Language, colonial history, and specialization:
  - Common languages and colonial history play a major role in identifying costs.
  - Spill-over from a full-capacity Cuba would partially shift to destinations with colonial ties to their OECD visitors.
  - Dependence on European tourism lowers overall arrivals, but if a critical mass of 40 percent of total arrivals are European this loss is somewhat offset by economies of scale (Europeans tend to visit in masses).
- Trade regimes and energy:
  - NAFTA has a substantial positive effect on tourism; U.S. Caribbean Basin Initiative (U.S.CBI) has a smaller but positive effect.
  - CARICOM membership is negligible if not detrimental to tourism arrivals.
  - Receiving oil through PetroCaribe and the Caracas accords benefits tourism arrivals more than producing oil.
- Industrial organization and airlines:
  - Evidence supports moderate market concentration in the Caribbean; Herfindahl index about 0.1 in 2000 (threshold for moderate concentration).
  - Larger destinations concentrate tourism arrivals and reduce overall regional intake, consistent with monopolistic behavior as small destinations face capacity constraints.
  - No robust evidence that nationally-owned Caribbean flag carriers flying into OECD countries significantly increase tourism arrivals relative to destinations without such carriers.

### Natural disasters, size, and resilience
- Hurricanes:
  - Impact on tourism in the year following a hurricane is uneven; some countries improve relative to neighbors where the hurricane did not land.
  - Larger islands fare better; countries with favorable international building code survey results do better in the wake of hurricanes.
  - Hurricanes trigger official and private capital inflows, force upgrades, and bring forth new tourism projects.
- Building codes and recovery:
  - International Wind Code Evaluation studies (2003) judged Cuba and the Dominican Republic building codes as state of the art; many Eastern Caribbean and CARICOM codes were judged outdated.
  - Hurricanes can prompt public and private sector refurbishments and enhanced investment in tourism infrastructure.

### Identification of uncertainty and strategic hedging
- The jump in arrivals from normalization is captured by a Poisson jump process with mean arrival rate λ; duration of the embargo summarized by 1/λ years.
- Hedging behavior:
  - Optimal hedging away from potential U.S. tourist losses depends on uncertainty over the arrival date of the liberalization.
  - If the probability/timing of liberalization rises, Cuba should prepare for increases in U.S. tourists (and potential losses of Europeans); competing destinations should hedge toward non-U.S. tourists.
- Historical periods analyzed:
  - Two periods identified as relatively tighter and looser U.S.-Cuba travel restrictions: 1996–97 (Helms-Burton tightening) and 1999–2000 (relaxation).
  - During 1999–2000, Caribbean destinations with high U.S. dependence should have diversified toward culturally different OECD countries to hedge; empirical tests find Cuba increased arrivals from culturally different countries in loosening episodes while competitors did not successfully hedge.

### Data, model fit, and robustness
- Data coverage:
  - Thirty-three Caribbean destinations receiving tourists from 21 OECD countries for 1995–2004.
  - Caribbean destinations list includes: Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, Bonaire, British Virgin Islands, Cancun, Cayman Islands, Costa Rica, Cuba, Curacao, Dominica, Dominican Republic, Grenada, Guadeloupe, Haiti, Jamaica, Martinique, Montserrat, Panama, Puerto Rico, Saba, Saint Kitts, Saint Lucia, Saint Vincent, Saint Eustatius, Saint Maarten, Trinidad and Tobago, Turks and Caicos, U.S. Virgin Islands.
  - OECD source countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, U.K., U.S.A.
- Model performance:
  - The gravity model explains 85 percent of the observed variation in tourism arrivals from 21 OECD countries across 33 Caribbean destinations over ten years.
  - Estimated coefficients remain broadly constant across specifications, indicating parameter stability.
- Capacity indicators and short-run constraints:
  - In 2004, average for large Caribbean destinations was 55 visitors per room.
  - Cuba in 2004 recorded 30 visitors per room, indicating substantial excess capacity relative to the regional average.
  - A conservative assumption that Cuba can raise utilization to the regional average implies capacity for almost double current visitors.
  - Current hotel-room figure cited: fifty-thousand hotel rooms (context: opening up to over 10 million U.S. tourists under distance/cost reductions).

### Scenarios for the impact of a hypothetical Cuba-U.S. tourism normalization
- Four distributional scenarios presented (all results averaged on 2003–04 arrivals):
  A. All U.S. arrivals to Cuba are entirely new tourists to the Caribbean (other destinations do not lose U.S. tourists).
  B. All U.S. arrivals to Cuba come entirely from existing U.S. tourists in the Caribbean (lost U.S. arrivals for competing destinations; non-U.S. visitors in Cuba redistribute).
  C. Mixed scenario: 1/3 new to the region and 2/3 diverted from existing destinations (intermediate scenario per Padilla and McElroy (2003)).
  D. Fitted Gravity model estimates for each country, summing projections across OECD sources to reflect long-term costs.
- Interpretation:
  - Scenarios (A) and (B) form bounds; (C) is an intermediate midpoint; (D) anchors long-term expectations using gravity panel results.
  - Scenario in which the region gains no new U.S. tourists and existing non-U.S. tourists in Cuba do not redirect is ruled out due to price adjustments filling empty hotels.
  - Puerto Rico assumed not to suffer U.S. tourist losses to a hypothetical Cuba-U.S. tourism liberalization.
- Quantitative outcomes (from model fits and Table 6):
  - Cuba retains about 20 percent of its non-U.S. tourists after a hypothetical opening to U.S. tourism and overall arrivals to Cuba more than double in the modeled scenarios.
  - Approximately 3 million U.S. tourists would visit Cuba in the unrestricted projections (consistent across fitted models).

### Policy implications and preparation recommendations
- Preparation and hedging:
  - Caribbean destinations heavily dependent on U.S. tourists should consider diversifying their visitor base toward culturally different OECD markets as the probability of Cuba-U.S. liberalization rises.
  - Because the timing of liberalization is uncertain (modeled via λ), optimal hedging depends on that uncertainty: as uncertainty falls, exposure to potential U.S. tourist losses should be reduced.
- Investment and resilience:
  - Improving building codes and hurricane preparedness is associated with better tourism outcomes post-hurricane; larger islands with stronger codes fared better historically.
  - Market concentration considerations:
    - Moderate concentration (Herfindahl ≈ 0.1) suggests potential for larger destinations to restrict entry to raise prices; smaller destinations face capacity constraints. Competition policy and capacity expansion strategies matter regionally.
- Energy and trade policy:
  - Engagement with preferential energy arrangements (e.g., PetroCaribe, Caracas accords) and selective trade agreements (NAFTA effects) can influence tourism arrivals; NAFTA shows substantial positive effect, U.S.CBI a smaller positive effect.
- Data and further modeling:
  - A computational general equilibrium (CGE) benchmark could usefully complement the gravity-based first-pass given uncertainties about factor costs and elasticities, though current data limitations favor the gravity approach for initial estimates.

*Italic: Source — content from the supplied PDF chapter/section _wp08162 (1995–2004 data and model results as described).*

### 2004. This figure is also consistent with Padilla and McElroy (2003).

### _wp08162 - 2004. This figure is also consistent with Padilla and McElroy (2003).

### Summary of projected demand, capacity, and investment
- Excess demand cited of 500,000 tourists.
- Long-run projected visitors to Cuba: 3.6 million annual.
- Hotel capacity required: roughly 10,000 new hotel rooms in Cuba to accommodate the 3.6 million annual projected visitors.
- Estimated construction cost per room: US$300,000 per room.
- Estimated investment to accommodate projected demand in Cuba: US$3 billion.
- HVS International’s Hotel Development Cost Survey Per-Room Range for 2004 and 2005: Full-Service Hotels and Luxury Hotels range from (thousands) US$77.1–339.7 and US$343.5–1,406.5, respectively.
- Independent confirmations cited: audits of the Sandals Whitehouse in Jamaica and the International Finance Corporation’s lending for construction of the Sao Paolo Intercontinental confirm approximately US$300,000 per room.

### Scenario projections and redistribution of tourists
- Scenario (A) — benign:
  - Current non-U.S. visitors in Cuba redistribute regionally among Caribbean destinations.
  - Outcome: Cuba, the Dominican Republic, Guadeloupe, Martinique, and most British Overseas Territories would gain arrivals.
  - Characteristic: every country does at least as well as current, as non-U.S. tourists in Cuba redistribute across the Caribbean.
- Scenario (B):
  - U.S. visitors would exit Caribbean destinations and non-U.S. tourists would exit Cuba after hypothetical opening of Cuba-U.S. tourism.
  - Clear winners: Dominican Republic, Guadeloupe, Martinique, Barbados (gain the most).
  - Heavy U.S.-dependent destinations (e.g., Cancun, the Bahamas, Jamaica, Aruba) show the largest losses under this scenario.
  - Result: destinations that have diversified away from the U.S. benefit most.
- Scenario (C):
  - Assumes one-third of tourists to Cuba would be new to the region, two-thirds drawn from competing Caribbean destinations.
  - Two-thirds of U.S. arrivals to Cuba would come from other Caribbean destinations; those destinations would, in turn, receive their share of current non-U.S. visitors to Cuba.
  - Outcome: intermediate between Scenarios (A) and (B); British or Dutch overseas territories reverse some losses relative to Scenario (B).
- Scenario (D) / Gravity-model long-run projection:
  - Model projects an overall increase in regional arrivals of 2.4–11 percent, consistent with Scenarios A–C.
  - Long-run shift toward a larger U.S. tourist presence: U.S. visitors would make up between one half and three-quarters of arrivals to most destinations in the long-run according to Figure 22.
  - Cuba and Belize projected for strong growth; Cuba would become the largest destination for U.S. tourists in the Caribbean (not including Puerto Rico).

### Key quantitative impacts and patterns
- Regional arrivals: an increase of roughly 10 percent is suggested by the results.
- Long-run regional increase range from the model: 2.4–11 percent.
- Travel-cost proxy: tourist-mile is used; cost to U.S. consumers of traveling to Cuba is estimated to be at least 7,000 nautical miles (used as a proxy for current tourism restrictions).
- Hotel capacity utilization and binding constraints:
  - Binding capacity constraints in Cuba would likely displace current tourists as new U.S. arrivals with lower travel costs compete for limited hotel rooms.
  - Capturing short-term dislocation is important for offsetting potential U.S. tourist losses to other Caribbean destinations.
- Distributional shifts:
  - U.S. would grow to a majority of visitors in Cuba while declining as a proportion elsewhere.
  - Destinations heavily dependent on U.S. tourism (e.g., U.S. Virgin Islands, Puerto Rico) gain few visitors from displaced non-U.S. tourists due to limited success attracting non-U.S. tourism.
  - On balance, scenarios show both declines in arrivals for some countries and increased diversification of tourist bases across OECD visitors.

### Policy implications and recommendations
- Competitors should prepare a long-term strategy to respond to the hypothetical elimination of implicit trade protection from restricted tourism.
- Suggested directions to compete in a potentially unrestricted Caribbean tourism industry:
  - Break up the value chain, specialize, and deliver customized services to clients that base demand on differing cultures and nationalities.
  - Increase overall access to airlines (including charters); access to OECD airlines is important even though having a domestic airline shows no robust evidence of helping tourism.
  - Improve resilience to natural disasters: strengthen building codes and preparedness, lower transaction costs, and improve financial sector soundness and the macro framework to cope with net capital inflows after storms.
  - Open to trade in other areas (for example, free trade agreements) to boost arrivals; strengthen historical and colonial links where relevant.
  - Act proactively: deliberately reform ahead of potential policy reversal to avoid costly missed opportunities associated with a late response to the loss of implicit trade preferences.
- Market strategy emphasis:
  - Hedging toward alternative tourist sources is important because U.S. visitor losses would occur on impact under many scenarios.
  - Specialization and segmentation of services for differing cultural and national preferences can help capture redistributed non-U.S. tourists.
  - Addressing capacity constraints in Cuba (new rooms, investment) is critical to managing displacement dynamics.

*Source: _wp08162 - 2004. This figure is also consistent with Padilla and McElroy (2003).*

### Chapter 12, Sahay et. al Editors, International Monetary Fund, Washington, DC.

### Chapter 12, Sahay et. al Editors, International Monetary Fund, Washington, DC.

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### Appendix Table 1 — Number of OECD Airlines to the Caribbean (overview)
- Table presents counts of OECD airlines serving Caribbean destinations by origin country columns including: Austr(a) (Aust r), Belgi u, Cana, Den m, Finla n, Franc, Germ, Grec, Irela n, Italy, Japan, Neth e, New Z, Norw, Portu, Spai n, Swe d, Switz, UK, USA, Total.
- Sample destination rows and totals shown include:
  - Anguilla: Total 14 (row entries include 3, 8, 14)
  - Antiguaandbarbuda: Total 14 (row entries include 3, 8, 14)
  - Aruba: Total 11 (row entries show 8 11)
  - Bahamas: Total 1115 (row entry shows 2 1115)
  - Barbados: Total 13 (row entries show 3 7 13)
  - Belize: Total 7 (row entry shows 1 6 7)
  - Bermuda: Total 12 (row entries show 1 9 12)
  - Bonaire: Total 7 (row entries show 4 7)
  - Britishvirginislands: Total 7
  - Cancun: Total 1951 (row entries show many country column counts and final 1951)
  - Caymanislands: Total 10 (row entries show 1 7 10)
  - Costa_rica: Total 13 (row entries show counts and final 13)
  - Cuba: Total 20 (row entries include 1 2 2 4 ... 4 20)
  - Curacao: Total 7 (row entries show 3 7)
  - Dominica: Total 2
  - Dominican_republic: Total 1141 (row entries include a sequence ending 1141)
  - Grenada: Total 6
  - Guadeloupe: Total 5
  - Haiti: Total 4
  - Jamaica: Total 26 (row entries include 1 4 2 ... 4 8 26)
  - Martinique: Total 3
  - Montserrat: Total 1
  - Panama: Total 8
  - Puerto_rico: Total 1525 (row entries include 1 1 ... 15 25)
  - Saba: 0
  - Saint_kitts: Total 5
  - Saint_lucia: Total 7
  - Saint_vincent: 0
  - St_eustatius: 0
  - St_maarten: Total 16
  - Trinidad: Total 7
  - Turksandcaicos: Total 2
  - USvirginislands: Total 9
- Source: OAG, Author’s estimates.

### Appendix Table 2 — Regression Notes (key variable definitions and indicators)
- Variables and indicator construction:
  - CostDistance (nautical miles)
  - Distance
  - Common language/country
  - Language du
  - Measurement Error
  - Puerto Rico
  - Exogenous Shock: Sept. 11
  - Petroleum: Caracas/Pet
- Cluster and concentration indicators:
  - Over 40% European — A dummy is included for destination-years where 40% of arrivals are from Europe.
  - A dummy is included for years when moderate concentration is present, according to the US DOJ.
  - Colonial spillover: included for colonial pairs on years when Cuba is at 75 percent capacity or greater, 1997-98.
  - Busy captures the extra tourists arriving to colonial relationship countries on years when Cuba has been at 75 percent or greater occupancy.
- Trade and policy dummies:
  - Trade Regimes
  - Nafta  dumm
  - US Trade Embargo
  - Regime tight/loose
  - Helms-Burt
  - PRGF dummy
  - Caricom dummy
  - US Caribbean Basin Initiative dummy
- Cluster membership notes:
  - Indicators included for Non-USA Clusters, USA Cluster, European co, USA, untries not in USA cluster, untries in USA cluster, but not USA.
- Natural disaster treatment:
  - Hurricanes: included in affected countries on the year following the hurricane.
- Airlines from: OECD.

### Appendix Table 3 — Data Definitions (variables and data sources)
- Airlines measured from Official Airline Guide Worldwide Travel Database of International and Domestic Air Service.
- Airline coefficients adjusted as follows: loecdair: ln(1+oecdair)
- Busy: captures the extra tourists arriving to colonial relationship countries on years when Cuba has been at 75 percent or greater occupancy. It corrects so that Canada is released from its colony status and travels to Dominican republic, Cancun, Puerto Rico, Jamaica, Bahamas, U.S. Virgin Islands.
- Common Territories: France -Guadeloupe, Martinique; the Netherlands - Bonaire, Curacao, Saba, St. Eustatius, St. Maarten; the UK -Anguilla, Bermuda, UKVI, Cayman Islands, Montserrat, Turks and Caicos; and the U.S. -Puerto Rico, U.S.VI).
- Cultural Distance: clustering on Hoefsted index values for Long-Term Orientation, Uncertainty Avoidance Index, Masculinity, Individualism, Power Distance Index.
- Herfindahl Index classification (per Merger Guidelines of the U.S. Department of Justice):
  - Herfindahl Index below 0.1 (or 1,000) indicates an unconcentrated index,
  - HI index between 0.1 to 0.18 (or 1,000 to 1,800) indicates moderate power,
  - above 0.18 (above 1,800) indicates high power.
- Natural Disaster data: EM-DAT: The OFDA/CRED International Disaster Database www.em-dat.net, Université Catholique de Louvain, Brussels, Belgium.

*Chapter 12, Sahay et. al Editors, International Monetary Fund, Washington, DC.*

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