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The Impact of 9/11 and Other
Terrible Global Events on Tourism
in the United States and Hawaii
CARL BONHAM,CHRISTOPHER EDMONDS,AND JAMES MAK
on neighboring countries and regions, and on the global
tourism market (Edmonds and Mak 2005). Reviewing past
trends suggests that some countries appeared to recover more
quickly than others from adverse shocks, and an examination
of the reasons for this warrants researcher attention, espe-
cially if the answers provide useful policy prescriptions.
There is a substantial and growing body of research on
the effects of terrorist events on tourism, much of which has
considered the effect of 9/11 on tourism flows. One early
analysis, Enders, Sandler, and Parise (1992), estimated
autoregressive integrated moving average (ARIMA) models
of tourism arrivals and terrorist incidences in Austria,
Greece, and Italy using data from 1970 to 1990 to estimate
revenue losses in the tourism industries in these countries.
Pizam and Fleischer (2002) examined through analysis of
data on Israel whether the magnitude or frequency of ter-
rorist incidents had a more detrimental effect on tourism
and found that more frequent incidents have a more lasting
effect that eventually can lead to a complete collapse of
tourism. Sloboda (2003) applies autoregressive integrated
moving average with exogenous variables (ARIMAX) esti-
mation to study the short-term effects of terrorism on
tourism flows. Several other recent articles have examined
the impact of 9/11 on particular segments of the United
States tourism industry—particularly the airline industry
(e.g., Ready and Dobie 2003; Lee, Oh, and O'Leary 2005;
Rupp, Holmes, and DeSimone 2005)—and have highlighted
the adverse effects of terrorism and counterterrorism mea-
sures on tourism-industry performance. By contrast, there
is a paucity of research on the process of tourism recovery
and when full recovery has been achieved following terror-
ist attacks and other terrible events. As well, there is a
paucity of rigorous empirical research on how terrorist
attacks and other shocks may redirect tourists from riskier
Carl Bonham is an associate professor of economics at the
University of Hawaii at Manoa. Christopher Edmonds is a Fellow
in the Research Program of the East-West Center in Honolulu and
an adjunct graduate faculty member in the Department of
Economics at the University of Hawaii at Manoa. James Mak is a
professor and chair in the Department of Economics at the
University of Hawaii at Manoa.
Journal of Travel Research, Vol. 45, August 2006, 99-110
DOI: 10.1177/0047287506288812
© 2006 Sage Publications
This article reviews recent trends in travel and tourism in
the United States and Hawaii to ascertain how the terrorist
attacks of 9/11 and subsequent terrible global events affected
tourism flows. United States tourism has not recovered fully
from 9/11 and other international shocks; indeed, recovery
may be a long way off. By contrast, Hawaii tourism is enjoy-
ing robust growth in the aftermath of 9/11 as growth in
tourist arrivals from the mainland has offset declines in
international visitors. We suggest that Hawaii’s current
tourism boom is explained in part by the diversion of United
States travel from foreign travel. The article demonstrates
the usefulness of vector error correction models to generate
dynamic visitor forecasts, which we use to determine whether
tourism in Hawaii has recovered fully from 9/11 and other
terrible international events. The article considers policy
options for facilitating the recovery of international tourism
to the United States.
Keywords: 9/11; terrorism; tourism impact and recovery;
tourism forecasting
Tourism is an important economic sector in many
countries. It often is described as a fragile industry in that
demand for travel is highly susceptible to numerous shocks,
such as wars, outbreaks of deadly contagious diseases, inci-
dents of terrorism, economic fluctuations, currency instabil-
ity, energy crises, and so on. When people travel, they do not
want to be exposed to personal hazards, so safety is a para-
mount concern of most travelers. Not surprisingly, terrorist
incidents and other threats to personal safety—whether they
are natural disasters or deadly contagious diseases—reduce
people’s propensity to travel. Alternatively, some people may
opt to change their travel plans and visit destinations where
they are exposed to less personal risk. A number of major
events have had significant negative impacts on international
travel and tourism during the past decade, among them, the
terrorist attacks of September 11, 2001 (9/11), the coalition
invasion of Afghanistan (October 2001), the Bali bombings
(October 2002), the “perfect storm” of the Severe Acute
Respiratory Syndrome (SARS) outbreak and the war in Iraq
(Spring 2003), the Madrid train bombings (March 2004), and
more recently, the massive, destructive tsunami in the Indian
Ocean (December 2004) and the London bombings (July
2005). These various shocks since 9/11 appear to have
exerted different impacts on the countries directly affected,
to perceived safer destinations. Thus, our article advances
the earlier research in a number of respects. First, we offer
a stylized way of examining tourism recovery following
terrorist attacks and other external shocks and develop an
empirical method for testing the recovery of Hawaii tourism
in the aftermath of 9/11. Second, our article calls attention
to the tourism-diversion effect of terrorist incidents and
notes that terrorist attacks and counterterrorism measures
may influence travelers’ choices between domestic and
international travel.
In this article, we review trends in travel in the United
States and Hawaii since 9/11. We wish to ascertain how the
terrorist attacks of 9/11 and subsequent international shocks
affected the tourism flows in the United States and Hawaii
and the manner and pace of their recovery. The article is
divided into four sections. The first part presents a stylized
picture of industry recovery following terrorist incidents and
other major negative shocks to tourism. We offer an eco-
nomic definition—which is quite different from the defini-
tion seen in the conventional travel trade literature—of
tourism recovery. The second section reviews and notes the
decline in international travel to the United States and
United States travel abroad since 9/11. We argue that the
recovery of international travel to the United States is not
imminent. We suggest that the decline in United States
travel abroad has been offset partially by the diversion to
(i.e., increase in) domestic United States travel and that
Hawaii has been a major beneficiary of this travel diversion.
We focus on Hawaii because Hawaii has excellent data on
both international and domestic tourist arrivals. Moreover,
like much of international travel, Hawaii travel is long-
distance travel, and hence, a good substitute for travel abroad.
In part three, we use state-of-the-art econometric modeling
to derive estimates of the impact of 9/11 and subsequent
shocks on Hawaii inbound tourism flows that also account
for the effect of macroeconomic fluctuations in the origin
and destination countries that influence international tourist
travel. We wish to ascertain to what extent Hawaii—which
is widely regarded as a safe destination—has been able to
divert travel from other destinations. As we shall demon-
strate, the substitution of domestic travel for overseas travel
by Americans since 9/11 has had a dramatic impact on
Hawaii, which has witnessed a sharp upturn in United States
mainland-origin tourist arrivals in recent years. By compar-
ison, travel and tourism in the United States as a whole has
not done as well. The final section explores possible reasons
for the differences observed in travel-industry responses and
considers the effects of antiterrorist and tourism-promotion
policies on tourism-market recovery and growth.
I. ECONOMIC VIEW
OF TOURISM RECOVERY
When travel-industry officials speak of recovery from
9/11, the conventional practice is to refer to the year 2000 as
the point of reference and to regard recovery as having been
achieved when tourist arrivals (or spending) return to pre-
attack levels. Economists, however, tend to view recovery
differently. For full recovery to have occurred, it is not enough
to get back to where you began, it is necessary that you get
to where you otherwise might have been had the terrorist
incident not occurred. Because the latter (i.e., the hypo-
thetical level of tourism flow) may be difficult to estimate,
a simpler alternative often used is to regard recovery as having
been attained when the level of economic activity (in this
instance, tourist arrivals or expenditures) reaches the level
obtained by extrapolating the pre-event, pre-shock (e.g.
9/11, SARs) long-run trend (see, for example, Engerman
1971; Blunk, Clark, and McGibany 2006).
By this definition of recovery, the effects of an external
shock and subsequent recovery begin with the historical
growth trend in tourist arrivals (or expenditures) that is inter-
rupted suddenly by an external shock such as a major ter-
rorist attack or natural disaster. The downturn and recovery
process is depicted graphically in Figure 1. The shock
produces a sharp downward spike in tourist arrivals and
expenditures. Following the shock, recovery begins almost
immediately. To achieve full recovery, tourist arrivals and
expenditures must grow at a rate that is faster than the his-
torical growth trend during a catch-up period. At some point,
with the higher growth rate, tourist arrivals and expenditures
reach the level that would have been attained had the event
not occurred, and recovery is complete. Thereafter, growth
is envisioned to proceed according to the historical trend. In
this article, we use this stylized framework to examine
tourism recovery in the United States and Hawaii after the
sequence of terrible events beginning with the 9/11 terrorist
attacks.
II. TRAVEL AND TOURISM
IN THE UNITED STATES SINCE 9/11
The terrorist attacks on 9/11 reverberated around the world,
but at the global level, their impact on aggregate international-
tourist arrivals was thought to be minor. Shortly after the
attacks, the World Tourism Organization (WTO) noted with a
degree of satisfaction that the number of international-tourist
arrivals fell by less than 1% from 696.7 million arrivals in
2000 to 692.7 million in 2001. This small annual decline,
however, marked a sharp reversal of the growth trend in
international-tourist arrivals registered in the decade preceding
9/11. By 2002, international-tourist arrivals around the world
rebounded to 702.6 million, exceeding the 2000 peak (World
Tourism Organization 2003). Of course, experiences in indi-
vidual countries diverged sharply from global trends. For
example, Figure 2 shows that 9/11 and subsequent terrorist
incidents and other major international shocks produced sharp
declines in international-tourist arrivals in the United States.
Figure 2 indicates that the United States travel-and-tourism
industry is far from recovery, as the volume of international
visitors to the United States continues to languish well below
pre-9/11 peak levels. Moreover, unlike the stylized recovery
path described in Figure 1, the post-9/11 trend remains below
the historical trend. Thus, full recovery is not imminent. The
United States’ share of total international arrivals has fallen to
a low 5.9% (down significantly from its recent peak level of
9.4% recorded in 1992) before showing a modest rise (0.1%)
in 2004.
One compensation to United States tourism-related busi-
nesses has been the uninterrupted rise in the number of
domestic-person trips since 9/11 (Table 1) compared to a
discouraging decline in the number of foreign tourists.
100 AUGUST 2006
However, total travel spending (after accounting for inflation)
fell even among United States domestic travelers, and in 2004,
remained below the level of domestic-travel spending pre-9/11
(Table 2). The drop in travel spending has fallen particularly
hard on tourism employment, as direct employment in
tourism fell by nearly 5% between 2000 and 2004 (Table 3),
as compared with a marginal (0.23%) decline in total
employment in the United States during the same period.
JOURNAL OF TRAVEL RESEARCH 101
FIGURE 1
SCHEMATIC REPRESENTATION OF TOURISM DOWNTURN AND RECOVERY
0
1
2
3
4
5
6
7
8
9
10
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Month-Year
0
1,000
2,000
3,000
4,000
5,000
6,000
Sept. 11, 2001
SARS Pandemic
Bali bombing
Indian Ocean Tsumani
Afghanistan invasion
Coalition invasion of Iraq
Pre-9/11 linear trend
Post-9/11 linear trend
Madrid Train Bombing
Number of Terrorist Incidents
Arrivals in Thousands
Intl. Arrivals USANo. of Terrorist Incidents
FIGURE 2
TERRORIST INCIDENTS AND INTERNATIONAL-TOURIST ARRIVALS TO THE UNITED STATES
Source: Information on visitor arrivals to the United States comes from the Office of Travel and Tourism Industries (2005), and
the number of terrorist incidents per month is extracted from the United States Department of State (2004).
The decline in United States domestic-travel spending,
despite the rising number of domestic trips, likely is explained
by the change in the mix of travelers. The terrorist attacks of
9/11 and subsequent shocks and the United States economic
recession that began in March 2001 all have led to reduced
business-travel budgets and sharply curtailed high-spending
business travel, especially travel to conventions and other
meetings. In 2003, business travel accounted for 18% of
total domestic-person trips in the United States but 31% of
total travel spending (Travel Industry Association of America
2005). Advances in telecommunication technology explain
part of the decline in business travel; today, businesses
(40% of business air travelers in 2004) are relying more heavily
on improved teleconferencing and the Internet as an alternative
to personal travel (Ibid.).
In response to 9/11 and subsequent shocks, United States
residents also have curtailed their travel abroad, and the
number of foreign trips from the United States declined con-
tinuously from 60.9 million trips in 2000 to 54.2 million
trips in 2003 (World Bank 2005). If we exclude trips to
Mexico and Canada, the number of long-distance overseas
trips declined from 26 million to 24 million. However, the
decline in outbound international travel from the United
States was less than the drop in international visitors to the
102 AUGUST 2006
TABLE 2
DOMESTIC AND FOREIGN TRAVEL SPENDING IN THE UNITED STATES: 2000–2004
In Current US$ (billions) In Year 2000 $ (billions)
Year Domestic Foreign Total Domestic Foreign Total
2000 $498.4 $82.4 $580.8 $498.4 $82.4 $580.8
2001 479.0 71.9 550.9 473.8 71.1 544.9
2002 473.6 66.5 540.1 470.7 66.0 536.7
2003 491.6 65.1 556.7 475.9 63.0 538.9
2004 525.3 74.8 600.1 486.8 69.3 556.1
Percentage Change 2000 to 2004 −2.3 −15.9 −4.3
Source: Spending data from the TIA (2005).
Note: Real expenditures were calculated using the travel price index developed by the Travel Industry Association of America.
TABLE 3
DIRECT TOURISM-RELATED SALES AND TOURISM EMPLOYMENT IN THE UNITED STATES: 2000–2004
Nominal Direct- Deflated Direct-Tourism Sales
Tourism Sales (in billions Yr. 2000 $) Direct Employment
Year (billions current $) TIA Deflator CPI-U (in thousands)
2000 $516.7 $516.7 $516.7 5,698.3
2001 492.1 486.7 478.2 5,624.3
2002 494.1 490.7 472. 5,499.5
2003 512.2 495.8 479.1 5,402.1
2004 546.4 506.4 497.6 5,423.6
Change (%)
2000—Low Year −4.8 −5.8 −8.5 −5.2
2000–2004 5.7 −2.0 −3.7 −4.8
Sources: Direct sales and employment data from Bureau of Economic Analysis (2005);travel price index used to deflate direct sales
obtained from the Travel Industry Association of America (TIA); CPI-U obtained from the Bureau of Labor Statistics (2005).
TABLE 1
DOMESTIC AND FOREIGN TRAVEL IN THE UNITED STATES: 2000–2004
Year Domestic-Person Trips (millions) Foreign Visitors (millions)
2000 1,100.8 51.2
2001 1,123.1 (2.03) 46.9 (−8.40)
2002 1,127.0 (0.35) 43.5 (−7.25)
2003 1,140.0 (1.15) 41.2 (−5.29)
2004 1,163.9 (2.10) 46.1 (11.89)
Source: Travel Industry Association of America (TIA 2005)
Note: Numbers in parenthesis gives the year-on-year change (%).
United States, which contributed to the country’s growing
current account deficit with the rest of the world.
The combination of rising domestic travel and declining
United States travel to foreign destinations suggests that
Americans have substituted travel to domestic destinations
in lieu of foreign travel. This is illustrated most clearly in
United States travel to Hawaii. Figures 3 and 4 show that
while international (i.e., mostly Japanese1) visitor arrivals to
Hawaii fell after 9/11 and have yet to reach pre-9/11 levels2,
domestic arrivals from the United States mainland have
JOURNAL OF TRAVEL RESEARCH 103
0
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2
3
4
5
6
7
8
9
10
Jan-89
Jan-90
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Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Month-Year
0
50
100
150
200
250
300
Pre-9/11 linear trend
Post-9/11 linear trend
Number of Terrorist Incidents
Arrivals in Thousands
No. of Terrorist Incidents Intl. Arrivals to Hawaii
FIGURE 3
TERRORIST INCIDENTS AND TOURIST ARRIVALS: HAWAII (INTERNATIONAL ARRIVALS)
Source: Information on visitor arrivals to the United States comes from the Office of Travel and Tourism Industries (2005), and
the number of terrorist incidents per month is extracted from the United States Department of State (2004).
0
1
2
3
4
5
6
7
8
9
10
Jan-89
Jan-90
Jan-91
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Jan-01
Jan-02
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Jan-04
Jan-05
Month-Year
0
100
200
300
400
500
600
Pre-9/11 linear trend
Post-9/11 linear trend
Sept. 11, 2001
First Gulf War
SARS Pandemic
Bali bombing
Indian Ocean Tsumani
Afghanistan invasion
Coalition invasion of Iraq
Asian Financial Crisis begins
Madrid Train Bombings
Number of Terrorist Incidents
Arrivals in Thousands vals
No. of Terrorist Incidents Hawaii-US
FIGURE 4
TERRORIST INCIDENTS AND TOURIST ARRIVALS TO HAWAII FROM THE UNITED STATES
Source: Information on visitor arrivals to the United States comes from the Office of Travel and Tourism Industries (2005), and
the number of terrorist incidents per month is extracted from the United States Department of State (2004).
risen by more than enough to compensate for the fall in
international visitors. The total number of visitor arrivals
(domestic and foreign) has surpassed the pre-9/11 peak
attained in 2000. Figure 5 suggests why United States travel
to Hawaii is booming: the pre-9/11 trend in the ratio of
Hawaii-to-foreign travel was falling, meaning that United
States travelers were displaying increasing preference for
foreign travel as opposed to travel to Hawaii before 9/11.
The upward spike in the ratio after 9/11 suggests that 9/11
and subsequent shocks abroad suddenly increased United
States preference for travel to Hawaii, and this has had a
strong positive effect on the state’s tourism industry—
although the long-term trend is still negative.
III. POST 9/11 TOURIST ARRIVALS IN
HAWAII: AN ECONOMETRIC ANALYSIS
To evaluate in a more rigorous manner the effects of 9/11
and other terrible global events on tourist travel to Hawaii, we
develop an econometric model of Hawaii tourism using quar-
terly data from 1980:1 through 2001:2. The estimated model
then is used to make out-of-sample forecasts of tourism flows
in the post-9/11 period, assuming that 9/11 and other subse-
quent terrible shocks had not occurred. We then compare the
actual path of visitor arrivals in the post-9/11 period against
the predicted path, and the difference is attributed to the
effects of the shocks. Our approach is similar to intervention
analysis commonly used to measure the impact of major
events on tourism (see, for example, Enders, Sandler, and
Parise 1992; Coshall 2005; and Pizam and Fleischer 2002).
However, intervention analysis typically is conducted using
simple ARIMA models that do not allow for the effects of
variables that may help explain tourism flows (an exception to
this is Bonham and Gangnes [1996]). Also, intervention
analysis typically is used to measure the effects of a shock by
modeling that shock using dummy variables. In contrast, we
focus on the recovery from terrorism and other terrible events
and define recovery as a return to the path tourism would have
followed had the shocks not occurred.
Specifically, our Hawaii tourism model is a vector error
correction model (VECM) that explains the movement of
four key endogenous tourism variables: United States (vUS)
and Japanese (vJP) visitor arrivals to Hawaii, the Hawaii aver-
age daily room rate (prm), and the Hawaii average hotel-
occupancy rate (ocup).3These endogenous variables are
determined by United States and Japanese real national
income (yrUS and yrJP respectively), the United States con-
sumer price index (pUS), and Japan’s exchange-rate-adjusted
consumer price index (pJP). The appendix has a brief descrip-
tion of the Hawaii Tourism Model (HTM), and Zhou,
Bonham, and Gangnes (2005) provide a complete discus-
sion. The idea of error-correction models was suggested by
Sargan (1964) and developed in Hendry and Anderson
(1977) and Davidson et al. (1978). Examples of applications
in tourism-demand forecasting include Dritsakis (2004),
Kulendran and Witt (2003), and Song, Witt, and Li (2003).
We calculate out-of-sample dynamic forecasts for the
period from the third quarter of 2001 (2001:3) through the
104 AUGUST 2006
0.0
5.0
10.0
15.0
20.0
25.0
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
percent
Pre-9/11 linear trend
Post-9/11 linear trend
Ratio pre-9/11 Ratio post-9/11
FIGURE 5
RATIO OF U.S. ARRIVALS TO HAWAII AND TOTAL UNITED STATES OVERSEAS DEPARTURES
Sources: Authors’ calculations based on data from DBEDT (2005) and United States Department of Commerce, International
Trade Administration (1998 through 2005).
Note: Figure shows ratio of Hawaii’s United States visitor arrivals by air to all United States overseas departures (international
departures excluding Canada and Mexico). United States overseas from April to December 1999 and December 2000 are
missing from ITA statistics, so these estimates are based on the prior year’s month-to-month change in arrival multiplied by
the prior month’s level of arrivals.
first quarter of 2005 (2005:1) and treat the forecasts as the
likely path of the growth of tourism to Hawaii without the
effects of 9/11 and other subsequent shocks.4This is prefer-
able to using linear trend extrapolation, because the year 2000
was a very strong growth year for Hawaii tourism and fore-
cast values generated by linear extrapolation are likely to
overstate the growth of tourist arrivals after 2001. To compute
dynamic forecasts, lagged endogenous variables in the HTM
take their historical values up through 2001:2 and their fore-
casted values from the model beginning in 2001:3. In con-
trast, we make use of historical data on the external factors
yrUS,yrJP,cpiUS, and pJP during the entire forecast period from
2001:3 to 2005:1. Therefore, to the extent that the 9/11 ter-
rorist attacks and other shocks led to a slowdown in the
United States or Japanese economies, our forecasts will not be
immune to all effects of these terrible shocks and likely will
provide lower bound estimates of tourism declines associated
with the tragic events. However, our model-based forecasts
produce slower growth in tourist arrivals than suggested by
simple trend extrapolation described in Section II.
Figures 6 and 7 demonstrate the expected paths for
United States and Japanese visitor arrivals if 9/11 had not
JOURNAL OF TRAVEL RESEARCH 105
750
800
850
900
950
1000
1050
1100
1150
1200
1250
1989:1
1990:1
1991:1
1992:1
1993:1
1994:1
1995:1
1996:1
1997:1
1998:1
1999:1
2000:1
2001:1
2002:1
2003:1
2004:1
2005:1
Arrivals in Thousands
Dynamic
Forecast
Year: Quarter
FIGURE 6
UNITED STATES VISITORS TO HAWAII: ACTUAL VS. FORECAST
200
250
300
350
400
450
500
550
600
1989:1
1990:1
1991:1
1992:1
1993:1
1994:1
1995:1
1996:1
1997:1
1998:1
1999:1
2000:1
2001:1
2002:1
2003:1
2004:1
2005:1
Arrivals in Thousands
Year: Quarter
Dynamic Forecast
FIGURE 7
JAPANESE VISITORS TO HAWAII: ACTUAL VS. FORECAST
occurred compared with the actual paths. Clearly, because
these are dynamic out-of-sample forecasts, they will com-
pletely miss the severe drop in visitor arrivals that occurred
in 2001:3 as well as the subsequent decline in Japanese
arrivals in 2003:2 during the height of the SARS epidemic
and the start of the Iraq invasion. In Figure 6, actual United
States visitor arrivals exceeded the dynamic forecasts begin-
ning in late 2003, and the gap widens markedly in 2004. By
comparison, in Figure 7, Japanese visitor arrivals in Hawaii
after 9/11 have yet to reach the levels predicted by the model.
Table 4 summarizes forecasted and actual United States
and Japanese visitor arrivals in Hawaii from 2001:3 through
2005:1. Applying the economic definition of recovery
described in Section I, Table 4 clearly demonstrates that
United States travel to Hawaii had fully recovered from the
shocks of 9/11 and subsequent terrible events by the end of
2003, when the number of United States visitor arrivals
exceeded the predicted number. By year-end 2004, the
actual number of United States visits to Hawaii was 9%
higher than the predicted number of arrivals in 2004, and in
the first quarter of 2005, it was 18.5% higher than the fore-
cast number. It is not mere coincidence that United States
arrivals to Hawaii (and to other domestic destinations) grew
even as United States foreign and overseas travel declined
following 9/11. We suggest that many United States travel-
ers transparently were making conscious choices to travel
domestically rather than to destinations abroad in a world
that was perceived to have become increasingly hazardous
to United States citizens. It is also noteworthy that there
were 4.125 million United States visitor arrivals in Hawaii
in 2000, so that 2003 was also the year when United States
visitor arrivals surpassed the pre-9/11 peak. By comparison,
Table 4 tells a totally different story for Japanese travel to
Hawaii. By year-end 2004, the 1.481 million Japanese
arrivals in Hawaii were 15.8% below predicted arrivals and
nearly 19% less than the number recorded in 2000 (1.819
million). However, there could be reasons other than the fear
of foreign travel after 9/11 that help to explain the decline in
Japanese visits to the Hawaiian Islands.5
Table 5 compares the gains and losses in Hawaii real
tourism revenues post-9/11 in year 2000 prices. These gains
and losses were derived by multiplying the differences
between the actual and forecasted visitor arrivals post-9/11
(Table 4) by the yearly estimates of the average per-person
per-trip expenditures for United States and Japanese visitors,
deflated by the Honolulu consumer price index (CPI-U, Year
2000 = 100). Again, applying the economic definition of
recovery, Table 5 shows that tourism receipts from United
States visitors had recovered fully by year-end 2003 but not
for Japanese visitors. Nevertheless, by 2004, gains in tourism
receipts from United States visitors more than compensated
for the losses from Japanese visitors. Thus, aggregate
tourism receipts for Hawaii from these two groups of visitors
had achieved full recovery (in the economic sense) by year-
end 2004. Still, recent gains in tourism revenues were not
enough to recoup earlier aggregate losses incurred between
2001:3 and 2003:4. Furthermore, in 2004, tourism receipts,
adjusted for inflation, were nearly 2.5% less than the level in
106 AUGUST 2006
TABLE 4
ACTUAL AND PREDICTED VISITOR ARRIVALS IN HAWAII 2001:3–2005:1
U.S. Visitor Arrivals Japanese Visitor Arrivals
Year Forecast Actual Difference Forecast Actual Difference
2001 (Q3&4) 2091 1908 −183 900 625 −275
2002 4133 4070 −63 1783 1478 −305
2003 4202 4264 +62 1689 1337 −352
2004 4197 4574 +377 1758 1481 −277
2005 (Q1) 1025 1215 +190 449 387 −62
TABLE 5
IMPACT OF POST-9/11 SHOCKS ON HAWAII REAL-TOURISM RECEIPTS: 2001:3–2005:1
($ VALUES IN THOUSANDS OF YEAR 2000 DOLLARS)
U.S. Visitor Arrivals Japanese Visitor Arrivals
Year Gains/Losses % of Predicted Revenues Gains/Losses % of Predicted Revenues
2001:3&4 −$264,984 −8.8% −$371,525 −30.6
2002 −98,280 −1.5 −409,184 −17.0
2003 +93,124 +1.5 −479,670 −21.0
2004 +550,154 +8.9 −375,300 −15.8
2005:1 +270,180 +18.5 −76,570 −13.8
Note: Gains and losses were derived by multiplying the differences between actual and predicted visitor arrivals (Table 4
above) by the estimates of the average real per-person per-trip expenditures for United States and Japanese visitors for the
respective years. Real numbers are obtained by deflating by the Honolulu Consumer Price Index (CPI-U), rescaled to year
2000 = 100. The expenditure estimates are obtained from the State of Hawaii Department of Business, Economic
Development, and Tourism (DBEDT) annual research reports for the relevant years; estimates of visitor expenditures for 2005
were obtained from http://www3.hawaii.gov/dbedt/index.cfm?section=READ_VisitorStatistics447.
2000. Measured in real dollars, tourism spending by United
States and Japanese visitors to Hawaii has not returned to the
pre-9/11 level even though total revenues have recovered
fully. An important lesson that can be drawn from this article
regarding the nature of recovery from exogenous shocks is
that individual expenditures on tourism need not necessarily
get back to the preshock levels of performance for tourism
revenues to achieve full recovery from the shocks them-
selves. There could be reasons other than the shocks that may
explain why we should not expect tourism revenues to return
to the preshock levels. In Hawaii’s case, real-visitor spending
per person per trip had been declining long before 9/11 (see,
for example, Mak and Sakai 1992, pp. 191–192; Department
of Business, Economic Development and Tourism, 1999-
2004) so that real tourism receipts might have been expected
to decline even if 9/11 and other shocks had not occurred.
In sum, the story of Hawaii tourism post-9/11 parallels
that for the entire United States, with international-tourist
arrivals exhibiting lackluster performance and domestic
travel appearing to have benefited from the greater reluc-
tance of United States leisure travelers to venture abroad.
However, by 2004, tourism in Hawaii had recovered fully
from 9/11 and other terrible international events after 2001,
but this was not the case for the United States overall.
IV. CONCLUSIONS AND POLICY
IMPLICATIONS
Global tourism has withstood the effects of recent years’
terrible events pretty well as travelers appear to have adapted
to threats by switching their choices of travel destinations.
As a result, tourist arrivals in most countries have displayed
great resilience in the face of the adverse post-9/11 travel
environment. Nonetheless, the succession of negative shocks
around the world during this period clearly has stymied the
recovery of tourism in some countries. In the case of the
United States, two trends appear to be working together to
contribute to the decline in its global-market share of inter-
national tourism. One trend relates to the reality and percep-
tion regarding ease of travel to the United States and the
hospitality of the country to foreign visitors. The second
trend relates to increasing ease of international travel to
many countries and the emergence of new destinations for
international visitors.
A number of recent, large, multicountry surveys of public
opinion indicate that views abroad about the United States
have become increasingly negative (Pew Research Center
2005; Program on International Policy Attitudes 2006), which
may carry over into an increasing perception abroad that the
United States is unfriendly to foreign tourists. However, these
trends have not been demonstrated clearly to be a serious
deterrent to foreign travel to the United States. The perception
that the United States is like a fortress when it comes to allow-
ing foreign tourists into the country is longstanding. Among
countries of the West, the United States has had among the
most restrictive visa-entry requirements. The United States
implemented its first visa-waiver agreement with the United
Kingdom (as an experiment) only in 1988, and today, the list
of countries whose nationals are able to enter the United
States without a prearranged visa is perhaps the shortest of
any of the Organisation for Economic Co-operation and
Development (OECD) countries.
It seems clear that the growing number of regulations
and requirements needed to obtain a tourist visa to the
United States makes it more difficult for foreigners who
want to visit the United States. Requirements for personal
interviews, higher visa-application fees, and longer waits to
obtain visas can deter would-be international visitors. Added
security measures at United States embassies abroad mean
that visa applicants often must wait in long lines to apply for
a visa (see, for example, Edmonds and Mak 2005; Luzadder
2005). United States insistence that foreign visitors hold
passports that include biometric identifiers of the passport
holder threatened to stifle the busy summer-travel season
and was dropped only last May when it became clear that a
majority of European countries would not be able to satisfy
the requirement.6
While added scrutiny of would-be visitors and tighter
security at United States facilities abroad are entirely under-
standable post-9/11, greater efforts seem necessary to ensure
that the time and inconvenience faced by those interested in
visiting the United States be reduced as much as possible.
There is a widespread perception among tourism-and-travel-
industry representatives that tourism often has been treated
as a second-class citizen among the other major industries.
Unless this mindset changes, final recovery of international
travel to the United States is unlikely. The industry, however,
is not totally impotent. The recent announcement by the
2,200-member Travel Industry Association of America (TIA)
to forge a strategic partnership with the Travel Business
Roundtable (TBR) could help to elevate policy-maker con-
cern about the impact of border-control policies on interna-
tional travel to the United States and offers promise of
providing a coordinated campaign to promote the adoption
of policies that reduce many of the pains associated with
international travel. There is an obvious need for the United
States to figure out ways to reduce the transactions costs for-
eign tourists face in their efforts to visit the United States.
Otherwise, international travel to the United States seems likely
to continue to perform below its potential, and the country
will be economically worse off as a result. Encouragingly,
the United States Department of State and the Department
of Homeland Security recently (January 2006) unveiled a
joint strategy termed Secure Borders, Open Door to encour-
age inbound tourism to the United States (Milligan 2006;
Hall 2006).
Another trend—that is, measures taken by foreign coun-
tries to ease their inbound travel restrictions to promote
international travel to their countries—also appears likely to
contribute to the relative decline in United States interna-
tional tourism. Following 9/11, many countries actually
have lowered their regulatory barriers to international visi-
tors and made it easier for foreign visitors to visit. Perhaps
it is not a coincidence that Singapore, which has visa-waiver
agreements with far more than 150 countries in the world,
saw its international travel quickly recover from waves of
external shocks and surpass its pre-9/11 peak (Edmonds and
Mak 2005). The numbers of foreign travelers visiting China
have been increasing, and if recent trends continue, the
country likely will pass the United States as the third most
popular international destination worldwide. In recent years,
China quickly has negotiated and implemented approved
JOURNAL OF TRAVEL RESEARCH 107
destination status (ADS) agreements that facilitate easier
visa processes for Chinese wishing to travel abroad and for
foreigners wishing to visit China.
The period since the 1990s has seen a number of impor-
tant multilateral agreements to ease travel between coun-
tries. The European Union (EU) implemented the Schengen
Visa, which enables foreign visitors from non-EU countries
to obtain a single visa that allows them to travel to all the EU
countries. Several countries in the Association of Southeast
Asian Nations (ASEAN) now allow visa-free entry for each
other’s nationals, and negotiations are underway to allow a
Schengen-type visa for travel within the ASEAN region.
These developments are mentioned to note that moves
toward easing travel restrictions continue around the world
even in an environment of heightened security concerns and
to note that in the highly competitive global market for
tourism, these measures can be expected to influence travel-
ers’ choices of destinations. For the United States, 9/11 and
heightened security measures in executing the war on global
terrorism have had the unfortunate side effect of harming
international travel to the country—perhaps for a long time
to come.
On a positive front, the preference for travel to Hawaii
(and perhaps other domestic destinations) as a substitute
for foreign travel may increase further in the near future as
new United States travel regulations under the Western
Hemisphere Travel Initiative (WHTI) that will require United
States residents returning from trips to Mexico, Canada, and
the Caribbean (except Puerto Rico and the United States
Virgin Islands) to show United States passports likely will
further discourage American travel abroad.7There is a caveat
here, however, because once United States travelers begin to
favor foreign travel again, the current boom in Hawaii
tourism could come to an end. For now, it is clear that
tourism enterprises in the United States and Hawaii have
become more dependent on domestic leisure travel.
108 AUGUST 2006
APPENDIX
The Hawaii tourism model (HTM) is a four-variable vector
error correction model (VECM). A VECM is basically a vector
autoregression model in differences augmented by levels informa-
tion in the form of equilibrium errors. The equilibrium errors arise
from imposing cointegration restrictions. For example, suppose
that United States visitor arrivals to Hawaii (vUS) and United States
real income (yrUS) are nonstationary, I(1) series. (A series is I(d),
i.e., integrated of order d, if it must be differenced dtimes to be
made stationary.) Nonstationary processes may wander a great
distance from their starting point and are not tied to any fixed
mean. Yet, a linear combination,
ν
US,t−
γ
⋅yrUS,t=
ε
DUS,t, may exist
that is I(0) and therefore defines an equilibrium relationship. The
linear combination defines an attractor that prevents the two I(1)
series from wandering too far apart. Finally, when two or more
series are cointegrated, they are known to have an error correction
representation,
(1)
In Equation 1, the change in United States visitors is explained
by past changes in itself, changes in real income, and the previous
period’s equilibrium error,
ε
DUS,t-1, defined by deviations from the
cointegrating relationship. An important advantage of error-correction
models is that they provide a method of combining the benefits of
modeling both levels and differences, and the parameter,
α
, on the
equilibrium error provides a measure of how much of the disequi-
librium is corrected in each period. The VECM simply extends
these concepts to the case of a vector of variables.
The HTM explains the movements of four endogenous
variables: United States visitor arrivals, vUS, Japan visitor arrivals,
vJP, the Hawaii average daily room rate, prm, and the Hawaii aver-
age hotel occupancy rate, ocup, conditional on a set of weakly
exogenous external factors (see Zhou, Bonham, and Gangnes
2005). The external factors are United States and Japanese real
national income (yrUS and yrJP, respectively), United States con-
sumer prices (cpiUS), and Japanese exchange-rate adjusted con-
sumer prices (pJP).8
The HTM was developed by first estimating an eight-variable
VAR, testing and imposing weak exogeneity restrictions on the
external drivers, and testing and imposing cointegration restric-
tions. Finding evidence of three cointegrating relationships, restric-
tions were tested and imposed to identify equilibrium visitor-demand
equations for both the United States and Japan, and one inverted
supply curve explaining the hotel-room price. The identified equi-
librium relations are:
The VECM then models the growth of the endogenous vari-
ables conditional on the growth of weakly exogenous variables and
the equilibrium errors
ε
DUS,
ε
DJP, and
ε
S.
(5)
where z= [y, x]′,y=
ν
US,
ν
JP,prm,ocup]′, and x= [yrUS,yrJP,cpiUS,pJP]′.
The 3 × 1 loading vectors,
α
1,
α
2, and
α
3, determine the extent to
which demand and supply variables respond to disequilibrium—
for example, if United States arrivals are less than predicted by
United States real income.
yt=c0+ωxt+3
i=1izt−i
+α1εDus,t−1+α2εDjp,t −1+α3εS,t−1+µt
vus,t =−0.167 ·(prmt−cpius,t )+2.5·yr us,t
−0.012 ·t+εDus,t
vjp,t =−0.336 ·(prmt−pjp,t )+2.5·yrjp,t +εDjp,t
prmt=0.572 ·vus,t +0.116 ·vjp,t +1.76 ·ocupt
+0.008 ·t+εS,t
vus,t =C0+p
i=0βiyrus,t −i
+k
j=1βjvus,t−j+α·εDus,t −1+µt.
(2)
(3)
(4)
The three long-run equilibrium errors enter the four equations dif-
ferently. The equation for United States visitor growth,
∆ν
US, contains
both
ε
DUS and
ε
S. The loading parameter on the United States demand
equilibrium, εDUS, is -0.20, so 20% of the equilibrium error is corrected
each period. The equation for Japanese visitor growth,
∆ν
JP, contains
only the equilibrium error associated with Japanese visitor demand,
ε
DJP, with a coefficient of -.29, suggesting complete adjustment to any
disequilibrium in less than a year’s time. The equilibrium errors for
United States demand,
ε
DUS, and the supply relationship,
ε
S, enter the
hotel-room price equation,
∆
prm, while all three errors enter the
equation for the change in hotel occupancy,
∆
ocup. The estimated
system appears to be an adequate model for Hawaii tourism activity.
All equations perform reasonably well, explaining 64%, 73%, 74%,
and 75% of the variation in
∆ν
US,
∆ν
JP,
∆
prm, and
∆
ocup, respectively.
All equations pass all diagnostic tests at the 5% significance level.
NOTES
1. Japanese visitors accounted for 74% of all foreign visitors to Hawaii
in 2001.
2. Edmonds and Mak (2005) provide data that suggest that the Japanese
also may have substituted domestic travel for overseas travel after 9/11.
3. This approach closely resembles that of Blunk, Clark, and McGibany
(2006), which estimates a vector autoregression model of demand for
United States domestic-airline travel post-9/11 to assess the industry’s
recovery and long-term impacts of the 9/11 terrorist attacks.
4. Coshall (2005) briefly describes the use of out-of-sample forecasts of
United Kingdom tourism receipts from an ARIMA model and refers to
speedy recovery and return to norm as occurring when actual receipts
approach the level predicted by his model.
5. Mak, Carlile, and Dai (2005) suggest that the aging of Japan’s popu-
lation also may help to explain the declining number of tourist visitors to
Hawaii from Japan.
6. By October 27, 2005, 2 of the 27 countries participating in the Visa
Waiver Program—Italy and France—were unable to meet the October 26
deadline to produce passports with integrated circuit chips capable of stor-
ing biographic information from the passport data page, a digitized photo-
graph, and other biometric information (Milligan 2005).
7. By law, the WHTI must be implemented fully by January 1, 2008.
However, the State Department and the Department of Homeland Security
recently announced a plan to create an identity card to facilitate travel
across United States borders (Milligan 2006).
8. All variables used throughout Part III of the text are described in
Table A2. All series used in this part of the article also are adjusted season-
ally at quarterly frequency and expressed as natural logarithms with the
exception of the occupancy rate, expressed as a percentage.
JOURNAL OF TRAVEL RESEARCH 109
TABLE A1
DYNAMIC MODEL: LOADING PARAMETERS AND DIAGNOSTIC
Equation
α
1
α
2
α
3
R
2AR1-5 Normality Arch
∆ν
US −0.2014 (−5.148) 0.1642 (4.725) 0.6378 2.5094 [0.0526] 0.6526 [0.7216] 0.64 [0.6413]
∆ν
JP −0.2932 (−3.932) 0.7345 2.2675 [0.0741] 1.9872 [0.3702] 0.46 [0.7632]
∆prm
−0.1147 (−5.186) −0.1617 (−4.507) 0.7359 2.0703 [0.0981] 3.0002 [0.2231] 0.51 [0.7266]
∆ocup
−0.0503 (−1.861) −0.1265 (−3.475) 0.2137 (5.460) 0.7531 2.1744 [0.0846] 0.0710 [0.9651] 0.43 [0.7889]
Log-likelihood = 1043.2214; LR-test,
χ
2(71) = 46.4704 [0.9893]
Note: Column 1 lists the dependent variable of individual equations in the system; Columns 2 to 4 give the loading parame-
ters,
α
1−−
α
3, and the corresponding
Student t
-statistic for the three identified cointegrating vectors; Column 5 presents the
coefficient of determination
R
2; Column 6 gives an
F
test (and corresponding
p
value) for the null hypothesis that the equation
residuals are independent up to lag 5. Column 7 is a
χ
2test (and
p
value) for the null hypothesis that the regression residuals
are normally distributed. Column 8 is a test for the null that the residuals do not exhibit autoregressive conditional het-
eroscedasticity (ARCH). Figures in parentheses are the
Student t
statistics corresponding to the loading parameters, whereas
those in brackets are
p
values for individual tests. Computations are carried out using
Pc-Fiml
9.10 with the exception of the
R
2, which are calculated using RATS v 5.0.
TABLE A2
SUMMARY OF VARIABLES IN THE HAWAII TOURISM MODEL
Mnemonic Description Units Source
Hawaii Variables
ν
US U.S. visitors to Hawaii 000s DBEDT
ν
JP Japanese visitors to Hawaii 000s DBEDT
prm
Hawaii average daily hotel-room rate dollar DBEDT
ocup
Hawaii average daily hotel occupancy rate % DBEDT
U.S. Variables
yr
US U.S. real personal income bil. 82-84$ BEA
cpi
US U.S. CPI (1982–1984 = 100) index BLS
Japan Variables
yr
JP Japan real personal income bil. 95Yen ESRI
cpi
JP Japan CPI (1995 = 100) index SBSC
Q yen-dollar exchange rate yen-dollar FED
Calculated Variables
P
JP
cpi
JP / Q — Authors’ calc.
Note: DBEDT = Department of Business Economic Development and Tourism, State of Hawaii; BEA = Bureau of Economic
Analysis, United States; BLS = Bureau of Labor Statistics, United States; FED = Federal Reserve Bank at St. Louis; ESRI =
Economic and Social Research Institute, Japan; SBSC = Statistics Bureau and Statistics Center, Japan.
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