Demand for International Tourism in Sri Lanka: Almost Ideal Demand System

Abstract

The paper analyses the tourism demand and its economic determinants for effective management within the tourism sector. Utilising the Almost Ideal Demand System (AIDS), the study aims to estimate tourism expenditure and price responsiveness elasticities. The model employs data from 1995 to 2019, focusing on total share, total expenditure share, and total expenditure share per item. The findings reveal that Sri Lanka emerges as a destination with typical demand characteristics, showcasing a notably higher demand for tourism. Analysis of spending elasticities, both in terms of own and cross prices, underscores the country's favourable position within the tourism market. Specifically, the results indicate that the demand for tourism in Sri Lanka is sensitive to pricing dynamics, with elasticity values suggesting a significant response of tourist demand to price fluctuations. Understanding Sri Lanka's competitive position relative to other destinations underscores the importance of tailoring management strategies to suit the unique demand characteristics of each country. Given the price sensitivity observed within Sri Lanka's tourism demand, careful attention to pricing mechanisms is imperative for sustaining and enhancing the country's tourism sector.