Heterogenous Effects of Visa Exemption Policy on International Tourist Arrivals: Evidence from Indonesia

Abstract

We examined the potential heterogeneous impact of implementing a series of visa-exemption policies on foreign tourist arrivals in Indonesia by exploiting a rich dataset of monthly series of foreign tourist arrivals, by country and by port of entry between January 2014 and December 2018. This is the first study in providing empirical evidence of the heterogenous impact of a country’s visa-exemption policy across tourist’s origins and within-country destinations. Using a panel data approach, our estimates showed that while the policy increased monthly foreign tourist arrivals by 5% on average, the effect was evident for non-traditional destinations only. The policy also potentially provided a diversion effect between destinations, such that created an adverse effect on the traditional destinations of Indonesia. Our estimates also suggest a heterogenous impact at the continent level, and an 8% higher impact per year after the policy’s introduction, which was relatively lower than has been found in other studies. The findings imply that the visa-exemption policy is not a one-size-fits-all policy in attracting international tourist arrivals.

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