Factors that influence tourism demand in Uganda (2000 – 2010)

Abstract

This study analyses the factors influencing tourism demand in Uganda. Four countries namely; Kenya, United States of America, United Kingdom and India were selected based on their importance in providing tourists to Uganda. Six macroeconomic variables that include: tourist arrivals to Uganda, relative prices, exchange rate, income, taxation, and inflation rate were identified as long run determinants of tourism for Uganda. The cointegration analysis in the Error Correction Model (ECM) framework was applied to estimate the Uganda tourism demand. This study tested for the stationarity of the variables before estimating the ECM. In addition, the diagnostic tests were done to ensure proper evaluation of the ECM. Tourism prices measured by inflation are negatively related to the volume of tourist arrivals. These prices were found to be inelastic (with elasticity of 11%, 7%, 16% and 6% for Kenya, USA, UK and India respectively) implying that demand for tourism is weakly responsive to the price changes. This finding could be attributed to the fact that most international holidays are planned well in advance. Incomes have a positive relationship with tourist arrivals. For USA and India tourists, Uganda is considered a luxury tourist destination.The negative income elasticity for UK is associated with inferior goods and this could be a reflection of the lower costs of Uganda’s tourism. For Kenya, the income variable is not significant raising questions as to whether arrivals are either tourists or relatives. Relative prices, exchange rate and taxation variables are also significant in the short run. Based on the empirical findings, some policies related to the economic performance are necessary to enhance the development of the tourism industry. These include: promotion of balanced cost fares for various countries depending on which one considers the good as either inferior or luxury; avoid negative image; development of tourism infrastructure; and promotion of products like tropical forests that are unique in nature for the country.