Modelling international tourism demand to Thailand: an augmented gravity approach

Abstract

International tourism demand has been cited as mostly following classical economic theory, which suggests that tourism demand is a function of economic factors such as income and price-related factors (Crouch, 1994; Nguyen et al., 2022; Rafiei & Abbaspoor, 2021). However, it has become evident that non-economic variables are also significant in explaining tourism demand (Tatoglu & Gul, 2019; Ulucak et al., 2020). Against this backdrop, Thailand presents an interesting case study as a unique country that has successfully managed political turbulence vis-à-vis a successful coup d’état while keeping the tourism industry resilient. As such, this paper aims to empirically investigate the determinants of inbound tourism to Thailand using an augmented gravity model that introduces institutional quality as a non-standard gravity variable. Although government institutions play a critical role in an economy, institutional quality remains neglected in the tourism literature. Preliminary insights derived from Ghalia et al. (2019) demonstrate that the quality of governance of such institutions and the absence of internal conflict boost tourism demand. In this note, institutional quality is computed based on five indicators (government stability, corruption, law and order, democratic accountability and bureaucracy quality) using paid data from International Country Risk Guide (ICRG). This aggregation reduces the risk of multicollinearity between the variables and is often used in the literature (Catrinescu et al., 2009). The note also captures the time effects of the COVID-19 pandemic.