Income Dynamics in Tourists’ Source Countries and Tourism Demand in Tanzania: An Analysis of Short-Run and Long-Run Relationships

Abstract

This study examined the short-run and long-run effects of tourists' source-country income, real effective exchange rate, and inflation on tourism demand in Tanzania. The study was guided primarily by the Tourism Destination Competitiveness (TDC) Theory developed by Crouch and Ritchie (1999) and advanced by Dwyer and Kim (2003), which explains tourism demand through the interaction of destination and economic conditions. A positivist philosophical approach and quantitative ex-post facto research design were adopted. The study used 120 observations of secondary time-series data and employed descriptive statistics, the Augmented Dickey-Fuller unit root test, the Variance Inflation Factor, ARDL bounds testing, ARDL estimation, and post-estimation diagnostic tests using EViews 13. The bounds test confirmed a significant long-run equilibrium relationship among the variables. Long-run results revealed that per capita income in China, the United States, and Canada positively and significantly influenced tourism demand, with elasticities of 2.714, 1.064, and 7.591, respectively. In the short run, income from all three source markets positively affected tourism demand, whereas the real effective exchange rate and inflation had significant negative effects. The error-correction coefficient of -0.865 indicated rapid adjustment toward long-run equilibrium. The study concludes that source-country income is the dominant economic driver of tourism demand in Tanzania, while exchange-rate movements and inflation constrain short-run demand. It recommends differentiated international marketing strategies, particularly targeting high-income and rapidly expanding source markets, alongside macroeconomic stability and competitive exchange-rate management to sustain tourism growth.