A Markov Regime-Wwitching (MS) Approach to Modeling the Effects of Fiscal Policies and COVID-19 Pandemic on Tourism Destination Competitiveness in Kenya

Abstract

Purpose – The COVID-19 pandemic has had a catastrophic impact on the tourist activity in Kenya. Global lockdown has limited travel resulting to losses in the tourism sector. This paper discusses the specific role that fiscal policy plays to improve tourism competitiveness in Kenya. Specifically, the study examines how Kenyan government can revive the tourism economy to improve its competitiveness. Design/methodology/approach – A tourism demand model to explore relationship between fiscal policies and inbound tourism in Kenya is developed. This study uses a Markov regime-switching (MS) regression model to establish the relationships that exist between COVID-19 pandemic, fiscal policies and tourism revenue in Kenya. Findings –The estimation results of the Markov-switching dynamic regression showed that the coefficients of international tourists arrivals, domestic bed occupancy and international bed occupancy are positive and significant with p-values of 0.000 during the pandemic period. The findings show that the transitioning periods during the fiscal policy shifts had an effect on the international arrivals. Therefore, fiscal incentives were key in influencing tourism arrivals and bednights occupancies. Research limitations/implications – The theoretical implications show that to promote the state of high international and domestic tourist arrivals, the government should encourage more fiscal spending initiatives that encourage the increase in tourist arrivals and occupancies such as vaccinations against COVID-19 and promoting safe spaces for visitors within the destination is key towards reviving the sector. In order to curb the hysteresis effects of COVID-19 related depression and resultant impacts on GDP, there is a need to review the national fiscal policies and target fiscal policies on the cyclical effects of the COVID-19 impacts on international tourism market. Originality/value – This research develops an economic model that builds accurate relationships between fiscal policies, pandemics and tourism destination competitiveness as a means of informing competitive tourism management strategies and governance.