Real Effective Exchange Rate Dynamics and International Tourism Demand in Tanzania: An Investigation of Short-Run and Long-Run Effects

Abstract

This study investigates the short-run and long-run effects of Real Effective Exchange Rate (REER) dynamics on international tourism demand in Tanzania. Guided by Tourism Destination Competitiveness Theory, Utility Theory, and Push–Pull Theory, the study examines whether exchange-rate competitiveness and tourists' purchasing power influence international tourist arrivals. A quantitative ex-post facto research design was employed using 120 annual observations of tourism demand, per capita income from China, the United States and Canada, and REER. Secondary time-series data were analysed using EViews 13. Descriptive statistics, Augmented Dickey-Fuller unit root tests, Variance Inflation Factor diagnostics, and the Autoregressive Distributed Lag (ARDL) bounds-testing approach were employed. The bounds test confirmed a stable long-run relationship among the variables, with the F-statistic of 6.853 exceeding the 1% upper-bound critical value. Long-run results revealed positive and statistically significant effects of per capita income from China, the United States and Canada on tourism demand, while REER had a negative but statistically insignificant effect. In the short run, however, REER exerted a negative and statistically significant effect, indicating that reduced price competitiveness can discourage international tourist arrivals. The error-correction coefficient was negative and significant, showing that approximately 86.5% of short-run disequilibrium is corrected within one period. The study concludes that exchange-rate competitiveness is particularly important in the short run, whereas source-market income is a stronger long-run determinant. It recommends macroeconomic stability, market-specific tourism promotion, flexible pricing, and strengthened destination competitiveness to sustain international tourism demand in Tanzania.