Discussion Paper No. 94 of 2009 on Estimating Inbound Tourism Demand for Kenya: the Gravity Approach

Abstract

Tourism is a significant economic sector in Kenya in terms of its contribution to the Gross Domestic Product, employment and foreign exchange earnings. However, the determinants for inbound tourism demand for Kenya are barely understood. This study aimed at estimating the inbound tourism demand for Kenya with respect to the main markets (UK, Germany, Italy, France, Switzerland, USA, Canada, Japan and India), which accounted for about 70 per cent of hotel bed nights by inbound tourists in 2007. The study adopted a gravity model approach. The System General Methods of Moments was applied to a dynamic panel data for the period 1987-2006 to identify the main determinants of the tourism demand for Kenya. The results reveal that income per capita in tourist generating countries, habit persistence and word-of-mouth effect, distance, tourism prices, visa fees charges and security are key determinants of tourist demand for Kenya. Per capita income in Kenya was found not to be statistically significant. There is need to reinforce word-of-mouth campaigns and repeat visits by improving quality of services and leveraging customer relationship management, and reducing cost and time of travel for tourists. The study also emphasizes the need for product and market diversification. Further research on supply-side determinants and the effect of tourism prices for competing destinations is suggested.