Business cycles and tourism imports in the South Pacific

Abstract

The demand for international tourism in Australia and New Zealand is vital to the South Pacific’s tourism-reliant islands. However, at the time of this study these two countries find themselves in precarious economic situations. The question addressed by this study is, will tourism imports in these two countries pick up on the back of economic recovery? We answer this question using time-difference analysis and the newly developed Hamilton filter. The short answer is yes, but more so in New Zealand than Australia. The key findings of this study are that tourism demand in both Australia and New Zealand is pro-cyclical, tourism demand cycles in New Zealand strongly lag business cycles by 1 year, whereas in Australia, they weakly lag business cycles by one quarter, and, overall, tourism demand and business cycles in New Zealand share a stronger association than they do in Australia.