Chinese tourists in Taiwan: Crowding out effects, opening policy and its implications

Abstract

In July 2008, Taiwan passed a legislation allowing Chinese tourists to travel into Taiwan. We are interested in crowding-out effects which may have a negative impact on Taiwan's tourism. However, lack of data compels us to employ monthly tourist arrivals from China to Japan as a reference for impacts of opening policies. We project that Chinese tourists into Taiwan due to the opening policy for individual tourists would increase substantially. We also analyze tourist arrivals from Japan, Hong Kong, and the United States to explore the crowding-out effect. Using seasonal ARIMA models with joint estimation of intervention and outlier effects, we find that Chinese tourists significantly crowd out Taiwan's international tourists from Japan and the United States, but not those from Hong Kong, even with Taiwan's increased tourism capacity. Therefore, our results indicate that Taiwan should either further enhance tourism capacity or decelerate its opening policy to avoid severe crowding-out effects.