INTERNATIONAL TOURISM DEMAND FOR GREECE A STUDY OF THE IMPACT OF THE ATHENS OLYMPIC GAMES 2004

Emanuel Raptis Bachelor Thesis, Spring 2011

Abstract This paper examines the developments of the elasticities of income in the tourist generating countries, the relative prices controlled for the exchange rate, and the distance in kilometers between the capital in the origin countries and Athens as explanatory variables for international tourism demand for Greece. By the deployment of an OLS log-linear regression model coupled with annual cross-section data for the period between 1998 and 2007, the desired effects could be captured. The results from this study indicates that after 2004, both the elasticities of income in the tourist generating countries and distance between the countries of origin and Athens have experienced a quantum drop in importance as determinants of international tourism demand for Greece. Furthermore, the elasticities of these factors remained at the new level throughout the remaining period studied. This suggests that the respective elasticities have reached a new plateau after 2004 where the impact on international tourism demand is less sensitive to changes in these specific factors. Finally, the investments made in infrastructure supporting the Olympic Games have the possibility to benefit the T&T sector in Greece for an extended period of time going forward.

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Agenda

  Introduction

  International Tourism Demand   Data and Statistical Method   Empirical Findings and Discussion   Concluding remarks

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Introduction

  The Travel & Tourism (T&T) sector is one of the largest industries in the world, accounting for 9,9 % of world GDP in 2009

  In Greece, the T&T sector accounted for 18 % of GDP in 2009

  Continued rapid growth is expected in the future due to growth in emerging economies

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Indeed, Travel & Tourism remains a critical economic sector worldwide, with the potential to provide economic growth and development internationally. A growing national T&T sector contributes to employment, raises national income, and can improve the balance of payments. Thus the sector is an important driver of growth and prosperity, and, particularly within developing countries, it can also play a key role in poverty reduction.

- Jennifer Blanke & Thea Chiesa, World Economic Forum 2011

Sources: World Economic Forum, Invest in Greece Agency

Purpose of the study

The primary factor in focus is the yearly movements of the elasticities of the variables; income in the tourist generating countries, the relative prices controlled for the exchange rate, and the distance in kilometers between the capital in the origin countries and Athens as determinants for international tourism demand for Greece. The impact of the Athens 2004 Olympic Games on the elasticities of the explanatory variables is of particular interest. To capture these effects an OLS log-linear regression model has been constructed using annual cross-section data. This method is particularly useful for this purpose since it allows for year-to-year comparisons of the estimated elasticities.

Key factors in focus:

  Yearly movements of the elasticities of the explanatory variables

  The impact of the Athens 2004 Olympic Games

  The method used to capture the desired effects

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Background - Travel and Tourism in Greece; Impacts and Flows

Sources: Invest in Greece Agency, UNWTO

  The Travel and Tourism (T&T) sector accounted for 18 % of GDP in 2009

  Positive spill-overs to upstream industries and infrastructure developments

  Increasing trend in international tourism arrivals

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Background - Travel and Tourism in Greece; Perspectives from WEF and IBRD

  The World Economic Forum Travel and Tourism Competitiveness Report Released semi-annually Greece ranked 24:th out of 133 economies +: Government prioritization of T&T sector, tourism infrastructure

-: Policy rules not supportive of economic development, restrictions on FDI, start-up costs

  The World Bank Doing Business Report Released annually Greece ranked 109:th out of 183 economies

Sources: World Economic Forum, World Bank

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Background - The Athens 2004 Olympic Games

  28:th summer Olympic Games

  Largest in terms of participating nations and sports events

  Attracted ca. 10.500 athletes

  Infrastructure developments include: New airport Facilities hosting and supporting the event New metro and tram lines

  Total investments amounted to EUR 7.2 billion (of which the Greek government provided EUR 6 billion)

Sources: De Groote (2005), Potsiou & Zentelis (2005), Kasimati & Dawson (2008)

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Agenda

  Introduction   International Tourism Demand

  Data and Statistical Method   Empirical Findings and Discussion   Concluding remarks

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International Tourism Demand - Definitions

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  The UNWTO definition of the international tourist

  Tourism demand is generally referred to as; Tourism services that cannot be purchased within the tourist residence country E.g. hotels, restaurants, cultural heritages, natural resources, and transportation

  Destination and origin

  International tourism arrivals vs. receipts

In general, tourism demand is referred to tourism-oriented products such as hotels, restaurants, transportation, and similar tourism services that cannot be purchased within the tourist’s country of residence. Therefore, tourism can be viewed as a regular export product with the distinction that the buyer must purchase the product on the location of the supply.

Sources: UNWTO

International Tourism Demand - Theoretical Framework

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  Papadopoulos (1986), broad literature review of the tourism phenomena Definition of the tourism product Definition of the tourism market

  Getz (1997), a study of the impacts of mega events on tourism The halo effect Maximize the positive effects of the mega event Quantum leap: accelerated growth vs. new plateau

International Tourism Demand - Empirical Framework; Overview of Empirical Research

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  Lim (1997a, 1997c, 2006), discusses the most common approaches for studying international tourism demand in a broad literature review Over 100 published studies are reviewed

  According to Lim (1997c, 2006), the most common methods used are variations of the single-equation regression model coupled with annual time-series, cross-sectional, and pooled data

Sources: Lim (1997a, 1997c, 2006)

International Tourism Demand - Empirical Framework; Relevant Empirical Studies

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  Previous studies on international tourism demand for Greece… Dritsakis & Athanasidis (1999) Dritsakis (2004)

  … and other countries Uysal & Crompton (1984), Turkey Akis (1998), Turkey Aslan, Kaplan & Kula (2008), Turkey Carey (1991), Caribbean islands

  Impact of the Athens 2004 Olympic Games Kasimati & Dawson (2008) Hede (2005)

Sources: Dritsakis & Athanasidis (1999), Dritsakis (2004), Uysal & Crompton (1984), Akis (1998), Aslan, Kaplan & Kula (2008), Carey (1991), Kasimati & Dawson

(2008), Hede (2005)

Agenda

  Introduction   International Tourism Demand   Data and Statistical Method   Empirical Findings and Discussion   Concluding remarks

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Data and Statistical Method - Specification of the model

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General model (Lim, 1997c) Model used in this study

  Functional form of the model

Sources: Lim (1997c)

Data and Statistical Method - White’s test for Heteroscedasticity

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  The following auxiliary regression was performed to test the data for heteroscedasticity

  Chi-square value is obtained by

  If the chi-square value obtained from the auxiliary regression exceeds the critical chi-square value (= 14,0671), heteroscedasticity exists in the data

Sources: White (1980), Gujarati & Porter (2009), Aczel & Sounderpandian (2009)

Data and Statistical Method - Data and sources

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  Tourist arrivals to Greece from 36 specific countries (95 % - 97 % of total population of international tourist arrivals) Obtained from Hellenic Statistical Authority, www.statistics.gr

  Real GDP/capita and annual CPI Obtained from World Bank Group database, http://data.worldbank.org

  Exchange rates, annual averages of the origin currency in terms of the destination currency Obtained from OANDA, www.oanda.com

  Straight line distance in kilometers between origin capitals and Athens Obtained from the World Distance Calculator, http://distancecalculator.globefeed.com

  Data on promotinal expenditures by the Greek National Tourism Organization (GNTO) was requested but neglected.

Agenda

  Introduction   International Tourism Demand   Data and Statistical Method   Empirical Findings and Discussion

  Concluding remarks

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Empirical findings and Discussion - Regression results

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Observations:

1. lnYjt is significant

2. lnRP*ijt not significant

3. lnDij is significant

4. nR2 < X27

5. R2: 0,533 – 0,650

Empirical findings and Discussion - Annual elasticities of income and distance

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  After the year 2004, both the elasticities of income in the countries of origin and distance between the origin capitals and Athens experienced a quantum drop in importance as explanatory variables for international tourism demand to Greece.

Observations:

1.  The elasticity of income decreased with 35 % between the years 2004 and 2005.

2.  The elasticity of distance increased with 20% between the years 2004 and 2005.

Empirical findings and Discussion - Tourism arrivals within the sample

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  After 2004, Greece experienced accelerated growth in international tourism arrivals from the 36 countries included in the study

  Whether Greece accomplished accelerated growth, or has reached a new plateau with maintained growth, in international tourism arrivals cannot be decided by this study

Observations:

1.  For the period between 2005 and 2007, yearly growth in ITA was 8,94 % on average

2.  For the period between 1997 and 2004, yearly growth in ITA was 3,59 % on average

Empirical findings and Discussion - Strengths and limitations

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Strengths:   Relatively high model fit (for cross-sectional data)

  Useful results gained by the use of; OLS log-linear regression model Cross-sectional data

Limitations:   Addition of more explanatory variables

Increase model fit and test the robustness of the results Include more qualitative factors

  Extend the period studied after 2004 to test if the movements of the elasticites were temporary or enduring

Agenda

  Introduction   International Tourism Demand   Data and Statistical Method   Empirical Findings and Discussion   Concluding remarks

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Concluding remarks 23

  The purpose of the study Yearly movements of the elasticities of the explanatory variables The impact of the Athens 2004 Olympic Games The method used to capture the desired effects

  The results The significance and the estimated coefficients of the explanatory variables The yearly movements of the elasticities and the change after the year 2004

  The contribution Extended knowledge about the possible impact of mega events on international tourism

demand for any given country Increased understanding about drivers of international tourism demand for Greece

Even without a comprehensive strategy, the Travel & Tourism sector in Greece adds 18 % to GDP annually. This is happening without us making any real efforts in developing this sector. Imagine the potential the T&T sector could have, if we developed better strategies.

- Angela Gerekou, Deputy Minister of Tourism and Culture

Thank you for your attention! Tack för er uppmärksamhet!

Σαςευχαριστώγιατηνπροσοχήσας!

International Tourism Demand for Greece - A study of the impact of the Athens Olympic Games 2004

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