An assessment of the effects of political risk and exchange rate on the tourist inflows to South Africa using time series data and the ARDL model

Abstract

The tourism industry is a major contributor to the economy in developing and developed countries. The industry generates foreign currency earnings, promotes foreign investment, and promotes infrastructure development. However, the performance of the industry is influenced by political risk and variations in the exchange rate as they influence tourist arrivals. This study investigated the influence of political risk and exchange rate on the arrivals of tourists in South Africa. It used time series secondary data, involving political risk, exchange rate, and tourist arrivals as variables, and the Autoregressive Distribution Lag model was used to analyse data. The findings indicate that tourist arrivals in South Africa declined in the long-run if political risk increased, but an increase in political risk does not affect the arrival of tourists in the short-run. The findings also show that a rise in the exchange rate (implying the depreciation of the South African currency) attracts foreign tourists in the short- and long-run. This study supports the findings of previous studies that an increasing political risk level adversely affects tourist arrivals, and an increase in exchange rate lures foreign tourists to a country. Thus, it is recommended that the level of political risk should be kept low for South Africa to attract more international tourists.