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• Chairman's Message
• Acting Executive Director's Statement
• Global Promotions
• Marketing Initiatives
• Public Relations
• Events & Promotions
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• MICE Business
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• Multi-Destination Travel
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• Independent Auditor's Report

Total visitor arrivals in Hong Kong last year plunged 14.2 percent year-on-year to nearly 56 million as travelers shunned the city which has been rocked by violent protests since mid-June.

READ MORE: HK reports worrying drop in tourist arrivals

The Hong Kong Tourism Board said it was redoubling efforts to retain Hong Kong’s appeal as a world-class travel destination in short-haul markets, including the launch of a campaign last month to promote some 500 offers on a dedicated online platform

The number started to fall in July, shortly after the social unrest stemming from the extradition bill incident began, and plummeted by almost 40 percent in the second half.

Hard-pressed local retailers are feeling the pinch from the prolonged industry-wide downturn. Cosmetics retail chain Sa Sa said it planned to shut down as many as a quarter of its stores over the next 18 months when their leases expire. The majority of the stores are located in prime tourist districts, which were hardest-hit by the turmoil, the retailer chain said. The first batch of seven stores will close by the end of March.

HKTB Chairman Pang Yiu-kai said the city’s battered tourism industry had faced “exceptional challenges” in the past year. The government-sponsored body is redoubling efforts to retain Hong Kong’s appeal as a world-class travel destination in short-haul markets like India, Indonesia, the Philippines, South Korea and Thailand. It will soon extend tourism promotional campaigns to Japan and other long-haul markets.

ALSO READ: Chilly winter' for Hong Kong tourism industry

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Open Access

Peer-reviewed

Research Article

Tourism’s long- and short-term influence on global cities’ economic growth: The case of Hong Kong

Contributed equally to this work with: Andy C. L. Tai, David W. H. Wong

Roles Conceptualization, Data curation, Formal analysis, Methodology, Software, Validation, Visualization, Writing – original draft, Writing – review & editing

Affiliation Division of Business and Hospitality Management, College of Professional and Continuing Education, The Hong Kong Polytechnic University, Hong Kong, Hong Kong

Roles Conceptualization, Formal analysis, Funding acquisition, Methodology, Supervision, Validation, Writing – original draft, Writing – review & editing

* E-mail: [email protected]

Affiliation Department of Management, The Hang Seng University of Hong Kong, Hong Kong, Hong Kong

Roles Resources, Validation, Writing – review & editing

Affiliation Department of Geography and Resource Management, The Chinese University of Hong Kong, Hong Kong, Hong Kong

• Andy C. L. Tai, 
• David W. H. Wong, 
• Harry F. Lee, 

• Published: September 29, 2022
• https://doi.org/10.1371/journal.pone.0275152
• Reader Comments

This research examines how tourism development has impacted economic growth in a global city–Hong Kong. A large body of research has investigated national tourism-led growth in developed and developing countries. However, many such studies have overlooked how policies aimed at fostering the development of tourism affect the local economic development of global cities. The Chinese and Hong Kong governments liberalized their visa policies with the launch of the Individual Visit Scheme in 2003. Such liberalization has led to significantly more tourist arrival from China. Our autoregressive distributed lag model of tourism-related data from 2003 to 2019 provides strong evidence that more tourism can spur short-run economic growth. Yet, such tourism can lead to uncertain effects on local economic development in the longer run. Hong Kong’s transient tourism-led growth has almost entered the stagnation stage of the Tourism Area Life Cycle model. During such stagnation, jurisdictions like Hong Kong can expect limited long-term economic growth from their tourist sector. Our findings thus sound a warning for global cities looking to tourism to sustain longer-term economic growth.

Citation: Tai ACL, Wong DWH, Lee HF, Qiang W (2022) Tourism’s long- and short-term influence on global cities’ economic growth: The case of Hong Kong. PLoS ONE 17(9): e0275152. https://doi.org/10.1371/journal.pone.0275152

Editor: Ricky Chee Jiun Chia, Universiti Malaysia Sabah, MALAYSIA

Received: July 6, 2022; Accepted: September 11, 2022; Published: September 29, 2022

Copyright: © 2022 Tai et al. This is an open access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Data Availability: All relevant data are within the paper and its Supporting Information files.

Funding: The Hang Seng University of Hong Kong Research Support Grant, Grant Number: URC-RS-2122-020.

Competing interests: The authors declared that no competing interest exist.

1. Introduction

The travel and tourism industry represents one of the most extensive and fastest-growing sectors worldwide. Such tourism thus contributes significantly to national and regional economic development in many developed and developing economies. The World Travel and Tourism Council estimates tourism accounted for about 10% of global gross domestic product (GDP) and global employment in 2019. Yet, the sector lost a bit more than US$9 trillion in 2019 and less than US$5 trillion in 2020 as a result of the COVID-19 pandemic. Such losses trimmed almost 4% of GDP off the global economy. Global employment in the sector fell about 19% from 334 million in 2019 to 2020 [ 1 ]. The COVID-19 crisis devastated the travel and tourism industry, posing severe challenges for the recovery of the global economy.

Hong Kong’s economy has been particularly prone to the COVID-19 pandemic’s economic effects. According to the Hong Kong Tourism Board, international tourist arrivals in Hong Kong grew from 13.6 million in 2000 to 55.9 million in 2019 [ 2 ]. Revenue from such tourism receipts rose from US$7.9 billion in 2000 to US$32.8 billion in 2019 [ 3 ]. The signing of the Individual Visitor Scheme between the Mainland and Hong Kong in 2003 exacerbated these trends. Mainland tourist arrivals multiplied 5 times from 8.4 million in 2003 to 2019. Mainland tourists accounted for about 78% of Hong Kong’s tourism market share. Tourism—especially from mainland China—became to form one of Hong Kong’s central economic pillars.

For decades, policymakers in places like Hong Kong have considered tourism an engine of economic growth. However, the chicken-and-egg problem affects tourism’s effect on economic growth or visa-versa . Fast-growing metropolises attract far more tourists than stagnant ones. According to Solow’s neoclassical growth model, an aggregated production function approach has been adopted and postulates technological change as an exogenous variable [ 4 ]. Yet, a city’s touristic luster develops independently and exogenously from decisions about deploying capital in the most productive way. Thirty years later, economists like Mankiw, Romer, and Weil, and Romer saw the potential such tourism could bring [ 5 , 6 ]. Tourism brings talented innovators, business people, and touristic places attract research interest. Such ‘human capital’ forms part-and-parcel with the endogenous technological innovation that drives Solow’s capital into scenic world cities. In recent years, theoreticians and econometric modelers have directly incorporated tourism into their models of economic growth. Tourism brings employment opportunities, foreign exchange earnings, and infrastructure improvements (among other things); positively contributing to a country’s/region’s economic growth and development [ 7 ]. Tourism also promotes connections between sectors—adding economies of scope and helping redistribute growth to lagging regions [ 8 ]. Asset bubbles, the increased cost of living, environmental degradation, and the over-exploitation of natural resources represent clouds to these silver linings in Hong Kong and other global cities [ 9 ].

Four major hypotheses have dominated the literature’s discussion about the association between tourism and economic growth [ 10 ]. First, the tourism-led growth hypothesis has recognized the catalytic effect of tourism on the economic growth process in many countries/ regions. It has argued for tourism’s direct contribution to components of GDP like the hotels/ hospitality sector, travel agents, passenger transport, and other leisure/ recreational services [ 11 ]. Unlike other sectors like manufacturing or finance, governments and/or public-private consortia must work together to increase investment in infrastructural development [ 12 ]. Second, the economy-driven tourism growth hypothesis posits a country/ region’s economic growth can strengthen the tourism sector. It indicates unidirectional causality from economic development to tourism, not vice-versa . More business travelers and upgrades to electric/ water mains and roads occur only when the local business expands enough to demand and pay for these services [ 13 ]. Third, the feedback hypothesis postulates bi-directional causality between tourism and economic development. Developing tourism and economic growth jointly determine each other [ 14 , 15 ]. Finally, the neutrality hypothesis argues that tourism has no significant effect on economic growth [ 16 ].

Numerous dynamic models have sought to move past these simplistic views of tourism-led growth. Butler’s Tourism Area Life Cycle (TALC) model, for example, depicts the evolution of a tourist area from its discovery to its final stage [ 17 ]. A tourism area’s S-shaped growth on a graph of time versus growth passes through the six stages of exploration, involvement, development, consolidation, stagnation, and decline (or, in some cases, rejuvenation). Some researchers point to the progressively increasing growth rates of tourist arrivals in a specific tourist area during the exploration, involvement, and development stages of a tourist area [ 18 , 19 ]. Decreasing tourist visits characterize the consolidation and stagnation stages of the area’s life cycle. In all stages, a tourist area’s economic growth goes hand-in-hand with its tourism development.

The literature, though, still leaves two questions unanswered. First, how does the tourism-economic growth relationship work for global cities? According to Globalization and World Cities Research Networks, global cities are important sites for foreign direct investment and take a pivotal role in production, finance, and advanced producer service to facilitate the operation of multinational corporations. New York, London, Singapore, Hong Kong, Paris, Beijing, Shanghai, Tokyo, and Madrid are typical global cities. These areas have large, urbanized populations working and living in a diversified economy [ 20 ]. If many researchers examine the tourism-growth nexus at the international, regional, and country levels, they leave the push and pull of global city factors completely unexplored [ 15 , 21 ]. Second, how has empirical or econometric methodology sorted out whether global cities encourage tourism? Time series arguments like Granger causality cannot identify the source of this growth. These methods also over-simplify the interaction between these factors [ 22 ]. Even if they could perform these feats, existing models cannot identify the short-term versus long-term effects of tourism on economic growth and visa-versa [ 23 ]. Authors like Song and Wu have called for their peers to comprehensively review the still nebulous association between tourism development and economic growth [ 24 ]. The results would allow policymakers to promote regional economic development with more effective tourism marketing and policy decisions.

Looking specifically at Hong Kong, we systematically examine how its economic growth responded to tourism after the 1997 Handover. Hong Kong represents a prime example of a renowned global city embedded with other prominent, factor-intensive, and trade-heavy metropolitan areas [ 25 ]. Understanding the growth-tourism nexus in Hong Kong thus teaches us something about this nexus in other global cities. The 2003 Individual Visit Scheme (IVS) also offers a large-scale natural experiment—or event where tourism changed independently of economic factors in any particular region. We use an autoregressive distributed lag (ARDL) model on several variables ranging from 2003 to 2019. The ARDL model will thus help us assign short-run and long-run effects on the role of tourism (and other factors) in Hong Kong’s economic development over the roughly 17-year period. The analysis will allow us to answer three questions left by gaps in the literature we cite above. First, does the TALC model apply to Hong Kong in the early part of this century? Second, what influence has tourism had on Hong Kong’s economic growth? Third, do short- and long-run factors influence how tourism development and economic growth evolve over time?

Our study contributes to the tourism-growth literature in three ways. First, our research provides new insights into how existing tourism and economic growth evolve in a global city. Many researchers—focused on countries or popular regions—have overlooked the large metropolitan regions that drive much global growth. Second, our study allocates the effects of tourism and growth in short and long-run terms. We find that tourism does not affect contemporaneous economic growth in the short run. The data also show a statistically significant one-quarter lagged effect on tourism development on economic growth. These results suggest that policies aimed at promoting tourism in places like Hong Kong have only transient effects. Third, and finally, recalling the TALC model, Hong Kong’s stagnation period in its tourism has resulted in short-term positive economic growth, while long-term growth spurts have not made up for. These findings argue that policymakers like Hong Kong can lean on tourism policies to juice growth—particularly during down-turns like those caused by the recent COVID-19 pandemic.

Our article has six sections. Section 2 analyzes Hong Kong’s current tourism sector. Section 3 outlines our methodology and our model specifications. Section 4 describes the data we used and our variable selection. Section 5 presents and discusses our empirical results. The concluding section draws together conclusions and presents implications from our study.

2. Hong Kong’s tourism sector

Over the past two decades, the tourism industry gradually became one of the strategic sectors in Hong Kong’s economy. According to Fig 1 , the share of international tourism receipts in total exports increased from 3.9% in 1998 to 7.5% in 2014 and then declined to 5.1% in 2019. Moreover, based on Fig 2 , the contribution of travel and tourism to Hong Kong’s GDP grew from 2.5% in 1995 to about 6.0% in 2013 and then dropped to 4.4% in 2018. The data trends in the two figures match closely.

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Data source: The World Bank. https://data.worldbank.org/indicator/ST.INT.RCPT.XP.ZS?locations=HK .

https://doi.org/10.1371/journal.pone.0275152.g001

Data source: World Travel & Tourism Council. https://tcdata360.worldbank.org/indicators/tot.direct.gdp?country=HKG&indicator=24648&countries=BRA&viz=line_chart&years=1995,2028 .

https://doi.org/10.1371/journal.pone.0275152.g002

Mainland visitors to Hong Kong have exploded since the Handover in 1997. Fig 3 shows the number of inbound tourist arrivals into Hong Kong from 1997 to 2019. Before 1997, Mainlanders could only visit Hong Kong by applying for business visas or joining organized group tours. From 1997 to 2002, Mainland visitor numbers steadily increased from 2.4 million to 6.8 million. The Severe Acute Respiratory Syndrome (SARS) epidemic in 2003 disrupted this growth. In response, government authorities on both sides of the border set up the IVS in July. The Scheme allowed Mainland visitors to travel to Hong Kong for up to seven days at a time. They could make only one or two trips per year under the Scheme and originate from only four cities in the Guangdong province (the province abutting Hong Kong). Mainland visitors to Hong Kong under the IVS scheme rose gradually from 8.5 million in 2003 to 18.0 million in 2009 and 22.7 million in 2010.

Data source: Hong Kong Annual Digest of Statistics. https://www.censtatd.gov.hk/en/EIndexbySubject.html?scode=100&pcode=B1010083 .

https://doi.org/10.1371/journal.pone.0275152.g003

Following the global financial crisis in 2009, the Shenzhen government allowed its permanent residents to visit Hong Kong multiple times under a modification to the IVS scheme. Such a visitor received an M-permit under the IVS scheme, with the M-permit endorsement granting the bearer the right to enter Hong Kong multiple times during one year. By 2015, Mainland tourist arrivals hovered at around 45.8 million people.

The growth of illegal black-market trade across the Shenzhen-Hong Kong border encouraged the authorities to modify the M-permit regime in 2015. In April 2015, government leaders announced the M-permit’s replacement with an Individual Visit Endorsement, allowing one weekly trip. By 2020, the mainland government extended the IVS scheme to 49 cities in 18 provinces [ 26 ]. Yet, the number of Mainland visitors remained relatively stable during this period. Mainland tourist arrivals from 2014 to 2018 only increased by about 3.8 million people. Social unrest in Hong Kong in 2019 led to a drop in Mainland visitors to about 44 million.

The introduction of the IVS scheme had a noticeable effect on the type and number of tourists/ visitors to Hong Kong. Non-Mainland visitors to Hong Kong rose from 8.9 million in 1997 (the year of Hong Kong’s Handover) to 12.6 million in 2008 (the start of the financial crisis). Such a rise vastly exceeded the increase in Mainland visitors until the introduction of the IVS scheme in 2003. The number of non-Mainland visitors oscillated between 13.3 million and 14.1 million from 2010 to 2018. By the end of 2019, non-Mainland visitors declined to 12.1 million. Such numbers make up only about one-quarter of the number of Mainland tourists. Since the COVID-19 pandemic, inbound tourism has almost halted from January 2021 [ 27 ].

In Butler’s TALC model, Hong Kong’s current tourist figures lie at the stagnation stage of the city’s tourism life cycle curve. The general reduction in tourist arrivals and the decline of the travel and tourism sector’s contribution to Hong Kong’s GDP after 2018 implies Hong Kong’s tourism infrastructure has reached its carrying capacity.

Spending in Hong Kong by Mainland and non-Mainland tourists varies, depending on whether they return to the Mainland on the same day or spend at least one night in Hong Kong. As shown in Fig 4 , spending by Mainland visitors to Hong Kong grew sharply from HK$26.1 billion in 2002 to HK$166.0 billion in 2014. Such growth represents a 41% compounded annualized growth rate in such spending until the end of 2014. In 2015, such spending gradually declined from HK$142.6 billion to HK$126.3 billion in 2016, bouncing back to HK$139.9 billion in 2018. By 2019, such spending plunged again to HK$97.2 billion.

https://doi.org/10.1371/journal.pone.0275152.g004

Spending by non-Mainland visitors at least one night in Hong Kong differed significantly from the trends described previously. Such spending increased from HK$25.7 billion in 2002 to HK$41.0 billion in 2008. Such spending slightly dropped to HK$33.7 billion in 2009 and hovered between HK$48.1 billion in 2010 and HK$53.7 billion in 2018. Reflecting the first results of the pandemic, tourist spending in Hong Kong by this stratum of tourists plummeted to HK$41.0 billion in 2019.

Spending by Mainland day-trippers skyrocketed from HK$2.0 billion in 2002 to HK$76.1 billion in 2014. Such spending then fell from HK$75.1 billion in 2015 to HK$59.5 billion in 2017. Since then, their spending has chaotically bounced from HK$74.9 billion in 2018 to HK$60.4 billion in 2019. Day-trippers’ spending thus mirrors the trends in spending by Mainland tourists spending at least one night in the city. However, spending by non-Mainland visitors bucked these trends. Whether day-tripping or spending the night in Hong Kong, their spending remained remarkably stable from 2002 to 2019. Such spending stayed between HK$1.6 billion (in 2002) and HK$3.8 billion (in 2019).

3. Methodology and model specification

The ARDL approach makes the relationship shown in Eq 2 more dynamic. Specifically, we perform the data transformation by log-differencing all variables for econometric reasons and make Eq 2 allow us to regress lagged values of the dependent and independent variables. Results related to short lags describe short-term effects, and a slight mathematical manipulation of the equation allows us to find any possible long-term equilibria. The Error Correction Model (ECM)–a simple recombination of the equation shown above—demonstrates how quickly the variables return to their long-term equilibria. Compared to conventional estimation techniques, such as Granger causality, the ARDL method can evaluate the short-run and long-run relationship between tourism development and economic growth. As such, the ARDL method is more relevant in our study [ 31 – 33 ]. Numerous studies have also used similar approaches in contexts like ours [ 23 – 34 ].

Which lags should we choose? And will the variables react to each other in the same time period? In other words, are our variables cointegrated (meaning we do not need to remove past information about our variables to do our analysis)? By applying the ARDL technique, we further develop our following model. We use Augmented Dickey-Fuller (ADF) and Philips-Perron (PP) unit root tests to estimate each variable’s level value, first-order difference, and second-order difference over time. The constant a does not change over time, the error term ε equals zero over a short span of time and θ represents the effect that past output has on current output. If Δ represents a change in a variable between two immediate periods; thus, Δy t represents the difference between y in time t and time t-1 . Eq 3 shows the simplest one-period difference, whereas Eq 4 shows the difference with i periods in the past. Variables with bars over them represent constants.

If we allow for Δ over many periods, we could have θ t-1 y t-1 + θ t-2 y t-2 and so forth on the current y t . Each theta represents a separate time effect. Variables with short lags represent short-term effects, and those with long-term lags represent longer-term effects. Eq 4 expresses this mathematically—with a sub-set of lag terms representing these short-term effects and a bar over the top to indicate a stable, equilibrium value.

If our variables affect each other in the long run and thus exhibit co-integration, we will observe the same long-term and short-term parameters described in the equation above. The adjustment toward the long-run values represents the error-correction part of our model. We do not choose our period i arbitrarily. We look at the lags with the best Akaike Information Criteria (AIC). We checked the usual assumptions behind time series models, using the relevant diagnostic tests when we were unsure about the good behavior of some of our variables. We found no issues that jeopardized our procedure or required changes to the data.

4. Data and variable selection

We suppose real GDP develops according to the production function we have described. We use the number of international tourist arrivals as one of the explanatory variables to test the effect of tourism development on economic growth. As a city’s economy grows in line with the development of its tourism resources and visitors, we hypothesize that tourism positively affects economic growth.

To examine this tourism-growth relationship in Hong Kong, we control for a number of factors. First, we include the amount of physical capital used in production as gross fixed capital formation. Second, we include employment figures to control the labor used in production. Third, we include the number of secondary school graduates as our proxy for human capital development. Hong Kong is an international financial hub. We use the GEM’s market capitalization to control the business activities of small and mid-sized technology firms and start-ups listed in Hong Kong. The extent of market capitalization represents our final control variable. These control variables thus represent the variables we described in Eqs 3 and 4 above.

5. Results and discussion

Before analyzing our results, we need to look at the validity of our regression. Table 1 presents the descriptive statistics for our entire data set. These statistics indicate that our variables follow the Gaussian distributions required for linear regression. We specifically show the skewness and kurtosis test results for our variables. The ARDL bounds approach to cointegration deployed in this study will minimalize the effects of some outliners, making our measures and inferences more robust. Table 2 shows the correlation between our variables. The correlation matrix reveals that the number of international tourist arrivals ( ta ) and economic growth ( y ) are positively correlated at a 1% significant level, providing preliminary evidence to support the tourism-growth nexus. More importantly, no correlation coefficients appear high enough to warrant concerns about multicollinearity between our variables.

https://doi.org/10.1371/journal.pone.0275152.t001

https://doi.org/10.1371/journal.pone.0275152.t002

Besides, non-stationarity (when variables are not cointegrated) represents a first problem that can invalidate our regression results. Fig 5A–5F show the difference in our variables’ natural logarithmic form over our period. As expected from these trends, our variables likely contain unit roots (and are thus integrated). Table 3 reports the results of the ADF and PP tests we described earlier–looking for unit roots. All our variables show statistically significant integration over one period.

https://doi.org/10.1371/journal.pone.0275152.g005

https://doi.org/10.1371/journal.pone.0275152.t003

To examine the co-integrated relationships among all variables, we performed the bounds test developed by Pesaran, Shin, and Smith [ 33 ]. Table 4 presents the bounds test for co-integration. Since the calculated value of the F-statistic (51.481) is greater than the upper bounds critical value (4.764) at a 1% significant level, all variables are co-integrated. Concurrently, our result of co-integration confirms the existence of the short- and long-run associations among the variables in the ARDL model specification.

https://doi.org/10.1371/journal.pone.0275152.t004

As previously mentioned, we used the AIC to determine the optimal lag length for each variable. The best information criteria of tourism development for lag times are two periods. After applying the appropriate lags and rearranging our equation to fit the ECM format, we estimated the short and long-term effects between tourism development and economic growth. Table 5 reports whether the data exhibited a long-run estimate. According to our ARDL model, the first variable shows one period lag while the remaining variables demonstrate two periods lag (or ARDL (2,1,2,2,2,2)). Our results show tourism development has no causal link with economic growth in the long run (i.e., in the same period), which has the same result reported by Tang [ 16 ]. Still, tourism development has a positive and statistically significant influence on economic growth after a one-period lag. For example, a 1% increase in tourism development today leads to a 0.205% rise in economic growth tomorrow. Corroborating authors like Oh and Tugca [ 7 , 8 ], our results show that the development of tourism in Hong Kong likely contributed to transitory economic growth in the area. However, such effects do not persist.

https://doi.org/10.1371/journal.pone.0275152.t005

According to Table 6 , the ECM produced an error correction term, which was -0.902 and significant at the 1 percent level, implying a short-run relationship prevails between the dependent variable and the regressors. Looking at the error correction side of our model, roughly 90% of a shock to tourism persisted beyond a single quarter. Changes in tourism definitely affect GDP growth—just as such, growth affects how tourism changes in Hong Kong from quarter to quarter. Nevertheless, even if they persist in small amounts, the relationships between the growth in tourism and GDP continue in the longer run.

https://doi.org/10.1371/journal.pone.0275152.t006

We checked the robustness of our model by looking at testing for all the usual problems. The Breusch-Godfrey serial correlation Lagrange Multiplier test found no autocorrelation in the residual terms. A Breusch-Pagan-Godfrey test found no heteroskedasticity in our model’s residual terms. A Ramsey RESET test found that we did not misestimate our model by forgetting to use squared terms. Finally, our Jarque-Bera test found normal distributions in our model’s residual terms.

Further, the stability of coefficients is tested by CUSUM and CUSUMSQ. The plots of both CUSUM and CUSUMSQ are presented in Figs 6 and 7 , respectively. Our results indicate that the estimated CUSUM and CUSUMSQ are generally within the 5 percent significance level, showing that the residual variance is reasonably stable. Finally, we dropped the variable–human capital development h in the equation to perform a robustness check. After conducting the robustness check, we found that the coefficients are plausible and robust.

https://doi.org/10.1371/journal.pone.0275152.g006

https://doi.org/10.1371/journal.pone.0275152.g007

6. Conclusions and policy implications

Our work has developed on TALC modeling, mainly how tourism development affects a global city’s economic growth. This study has also examined how tourism development in Hong Kong has affected the city’s economic growth. We investigated the short- and long-run tourism-growth relationship using a dataset from 2003 to 2019 and the ARDL model. We found that Hong Kong likely wrung out most of its tourism industry’s benefits. In the short run, tourism development in Hong Kong spurred the city’s economic growth after a one-quarter lag. We clearly have such lagged effects with introducing tourism-friendly policies, like the visa liberalization policy. Yet, the relatively small impact of tourism on economic growth dissipates away quickly.

Our findings have two significant policy implications. First, Hong Kong’s economic, social, and environmental issues swamp the effects on GDP growth of any pro-tourism policy. Our regression coefficients continued to show that the good old factors of production enshrined in a standard Cobb-Douglas production function affected GDP growth more than tourism policy. The sudden closure of borders between Hong Kong and other countries after 2019 has seriously reduced the number of international tourist arrivals into Hong Kong. Such a sudden stop in tourism has given policymakers ample opportunity to reassess tourism’s role in Hong Kong’s future development. Hong Kong’s future tourism policy should focus on quality above quantity. Mainland visitors will continue representing the lion’s share of Hong Kong’s tourists. Mainland tourism-related firms, government bodies, and industry associations have started focusing tourism activities on higher value-added and productive experiences for all parties.

Second, tourism affects local economies differently over time. The initial positive short-term effects on growth can quickly dissipate away as fundamental factors of production decide GDP growth in the longer term. The 2003 IVS boosted tourism, benefitting Hong Kong’s economic development by fostering employment, increasing tax revenues, and generating positive spillover effects across industries. After almost two decades, though, visa liberalization has yielded diminishing returns. Echoing Qiu, Fan, Lyu, Lin, and Jenkins’s and Tsai’s views on such tourism [ 9 , 35 ], policymakers may need to reevaluate the equity-efficiency trade-off inherent in tourism development. Using tourism simply to foster economic growth will need to give way to a more sustainable view of tourism.

Our results suggest that tourism development can stimulate economic growth in global cities like Hong Kong. The COVID-19 pandemic may affect how previous tourism policy and planning influenced the global city’s economic growth. However, having econometric estimates of the short-term and long-term relationship between tourism and economic growth can help policymakers develop better tourism strategies. Future research on other global cities like Beijing, Shanghai, Singapore, New York, and London may lead to more specific findings.

Supporting information

https://doi.org/10.1371/journal.pone.0275152.s001

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• 26. Hong Kong Monetary Authority, Hong Kong. The impact of inbound tourism boom and burst on Hong Kong labor market. Research Memorandum 02/ 2021. 2021. 2021 March 16. https://www.hkma.gov.hk/media/eng/publication-and-research/research/research-memorandums/2021/RM02-2021.pdf
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• 32. Pesaran M. H.; Shin Y. An autoregressive distributed lag modelling approach to cointegration analysis. 1999. In: Strom S. (Ed.), Econometrics and Economic Theory in 20 th Century: The Ragnar Frisch Centennial Symposium, Chapter 11. Cambridge University Press, Cambridge.

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• 2012 Olympic Games: Impact on holiday choices in the UK
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• Premium Statistic Share of Chinese traveling to Hong Kong, Macao and Taiwan 2017-2018, by destination
• Premium Statistic Major departure cities of Chinese tourists traveling to Hong Kong, Macao, Taiwan 2018
• Premium Statistic Number of monthly visitor arrivals in Hong Kong 2020-2024
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• Premium Statistic Growth rate in tourism revenue in China 2012-2022
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An aerial view of Hong Kong takes in Victoria Harbour and the Central business district, with Victoria Peak in the distance.

Traveling to Hong Kong? Here’s what you need to know.

As protests in this Asian megacity stretch into their fourth month, here’s how tourism is being affected.

Protests in Hong Kong have been dominating video clips and newsfeeds since June 9, when the Hong Kong government proposed a bill that would allow China to extradite fugitives to the mainland. Since then, initially peaceful weekly protests have grown in size, encompassing demands for political self-determination and personal autonomy, and have become increasingly agitated. On October 1, China’s National Day holiday, a protester was shot during one confrontation. ( See how Hong Kong’s complex history explains its current crisis with China. )

“Visitor safety is of the utmost importance for us,” said Hong Kong Tourism Board PR representative Brea Burkholz. “But it’s a safe and welcoming city, and there has been no violence or crime committed against tourists.”

A website provides regular updates, and the tourist board has a chat room for visitors to connect directly with representatives, 9 a.m. to 6 p.m. daily (Hong Kong Standard Time). “We’re doing due diligence with airline, hotel, and tour partners to confirm they are able to provide assistance in the event of travel disruptions,” said Burkholz.

Still, in August, Hong Kong tourist arrivals fell 40 percent, according to Financial Secretary Paul Chan Mo-po, the largest drop since the SARS outbreak in 2003. What’s it really like to visit there now?

People attend a protest in the Western District of Hong Kong on August 4, 2019, in the latest opposition to a planned extradition law that has evolved into a wider movement for democratic reforms.

Protesters leave a message in the Mong Kok district of Hong Kong.

I had the opportunity to find out during a 14-hour layover at Chek Lap Kok Airport two weeks ago. Before heading out to the city, I checked the latest update for Hong Kong on the U.S. State Department website (“exercise increased caution”), then beelined to a tourism booth in the arrivals area.

Any areas I should avoid today? I asked.

“The protests are always on the weekends,” she told me. “But let me check the schedule to make sure. We have informed sources who tell us what will be happening each day.”

She scrolled through texts on her phone. “Hmm, the University of Technology,” she said. “Don’t go there. And if you want to go to the Peak Tram, go now, because there is a protest scheduled for 6 p.m. at the Chater Garden.”

“But”—she provided a caveat—“there are always last-minute changes.”

On the surface, everything seemed as it was on my last visit to Hong Kong six months ago. A commute across the harbor aboard the Star Ferry was still an intoxicating ride. The venerable street cars navigating Hong Kong Island continued to provide a thrill. But today, as protests neared their fourth month and continued to upend the city, it was easier to get a seat on the otherwise packed trams. They even seemed to move a little faster, less encumbered by the usual pokey traffic in Central , the city’s main business district. ( See the complex history of Hong Kong, visualized. )

My first stop: Man Mo Temple . The Taoist place of worship is dedicated to the god of literature and the god of war—a good place for me to start—and was undergoing restoration work. But the usual crowd of tourists was missing.

Since protests started in June, visitor numbers to places such as Man Mo Temple, in Hong Kong’s traditional Sheung Wan neighborhood, have decreased.

I strolled along Hollywood Road east to Lan Fong Yuen, a café that is said to have invented “silk stocking milk tea”—black tea passed through long, pantyhose-like nets. Nearly every seat in the cramped café was taken, and I was shown to a table with a Korean mother and adult daughter who were busy capturing their breakfast on cameras.

At the next table, a group of upbeat twenty-somethings visiting from the Philippines eagerly dug into their breakfast. Any hesitations about traveling to Hong Kong, I asked them?

“No,” said one young man. “Danger is everywhere.”

At the Zoological and Botanical Gardens , I was eerily alone with the meerkats and the lemurs—alone, except for a half-dozen or more groundskeepers focused on keeping the fountains and aviaries immaculate, despite a dearth of visitors.

The wait for a ride on the Peak Tram , the 131-year-old funicular that scales Victoria Peak, can sometimes exceed two hours. I found no line at all; the funicular departed barely half-full. The spectacular harbor view at the summit confirmed why visitors are usually willing to brave a lengthy queue. ( See photos of Hong Kong’s surprising green spaces. )

The Peak Tram has been ferrying visitors from Central district up Victoria Peak since 1888.

In Kowloon , the mainland side of Hong Kong, a Viking cruise ship was parked at Harbour City Ocean Terminal. A dozen passengers fresh from the airport were queueing for embarkation aboard Viking Orion for a voyage headed to Beijing . The mostly American passengers seemed nonplussed by protests that had taken place just blocks from the port.

“We first came here 32 years ago,” said one passenger. “This is such a fabulous city, and everything I was reading in the last few weeks told me we would be safe on our stopover here.”

“The protests are on weekends,” his wife added. “So we weren’t too worried coming through during the week.” ( Learn the top 10 things to do in Hong Kong. )

After a day of wandering, I hadn’t met any Hongkongers who shared sharp opinions of the protests, one way or the other. There was mostly a feeling of frustration and resignation. A mother strolling her baby along the waterfront told me her heart is with the protesters and she hopes they can prevail without bloodshed.

Demonstrators hold up mobile phones as they form a human chain at the Peak, a popular tourist spot in Hong Kong, on September 13, 2019.

“But I don’t know how long this can continue,” she said. “Both sides are standing quite firm, and I don’t see much compromise.”

Soon it was time to make my way back towards the airport and my evening flight. I entered an MTR subway station beneath one of Hong Kong’s most storied hotels, The Peninsula . Here, the writing is on the walls: Post-It notes canvass one corridor with anonymous words of support for the protesters; other yellow squares are used to recreate iconic photographic images.

Even during the week, Hong Kong’s protest lives on, quietly. But so does life for Hongkongers.

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Hong Kong protests: The impact on local tourism

Image credit: Photo  by Wpcpey /Flickr, Licence:  CC BY-SA 4.0 .

Written by Denis Tolkach .

Hong Kong’s major tourist attractions have been quiet recently; this is the result of the protests that started in June 2019 as a pushback against the proposed extradition bill. Increasingly, protesters have resorted to civil disobedience and radical actions. This has included occupying the airport and the transportation links to and from it in order to cause the cancellation of flights, disruption to local public transport operations and a general strike.

The escalating violence has resulted in the international media portraying Hong Kong as a dangerous city, and many countries have issued travel advisories stating that Hong Kong might be a risky place to visit.

Hong Kong’s major tourist market is Mainland China. In 2018, 78 per cent of all visitors to Hong Kong came from the Mainland

Various sectors of the economy have been hit by the protests, including tourism. Tourism is considered one of the economic pillars of Hong Kong’s economy, and visitor numbers grew rapidly during the first half of 2019. However, the latest figures released by the Hong Kong Tourism Board show that growth in July 2019 was down 4.8 per cent in July 2019, compared to July 2018. The figures for January to July were still positive, showing growth of 11.1 per cent thanks to the high growth in arrivals to Hong Kong in the first half of the year.

In August 2019, visitor arrivals dropped by 40 per cent compared to the previous year, reflecting the escalation of unrest. Travel is something which people plan in advance, and so events which take place now affect bookings for future trips. Therefore it is unlikely that visitor arrivals will recover before the end of the year, even if the protests were to stop immediately. Hotel occupancy has been severely reduced, with revenues from hotel room sales down by about 50 per cent . The retail sector, for which shopping by tourists represents a major market, has also been severely hit.

Hong Kong’s major tourist market is Mainland China. In 2018, 78 per cent of all visitors to Hong Kong came from the Mainland. The Mainland Chinese authorities and media have condemned the protests in the strongest terms, suggesting that they are being orchestrated by foreign powers and pose a threat to national security. At the same time, they have carried out a disinformation campaign on various international social media platforms that are banned in Mainland China, such as Facebook, Twitter and YouTube.

Hong Kong University tracks social media censorship in China and the second most common term that appears in the censored posts over the past two months is ‘Hong Kong’. There was a similar spike in censorship in 2014 during the ‘Occupy Central’ protest, which made assessments of how Mainland Chinese felt about travelling to Hong Kong unreliable . In such an environment, it is expected that potential Chinese visitors will stay away from Hong Kong for now. Thus, those businesses that are heavily dependent on visitors from the Mainland and group tours have been highly affected .

Similarly, while figures from the World Tourism Organisation (UNWTO ) indicate that 52 per cent of all visitors to the Mainland come from Hong Kong, reports of immigration authorities on the Mainland checking the mobile phones of arriving Hongkongers (and questioning and detaining any who have photographs or texts appearing to support the protests) have made Hong Kong residents wary of visiting Mainland China. As a result, not only are visitor numbers from Mainland China to Hong Kong affected, but the reverse is also likely to be true, despite a lack of statistical confirmation.

Looking further afield, are international visitors likely to come to Hong Kong in similar or higher numbers than before over the medium term? This depends very much on the final outcome of the protests, which at present is impossible to predict.

There are concerns that the People’s Liberation Army (PLA) will come to crush the protests, or that the central government in Beijing will put an end to Hong Kong’s autonomy, both of which scenarios would likely result in an exodus of international companies from Hong Kong and the city losing its international standing. Some people hope that the protests will calm down with the start of the new academic year. Alternatively, it might be possible for the government to find a political solution that will appease the people of Hong Kong and so end the crisis.

According to panel data from 111 countries , political crises affect medium-income countries the most. These countries tend to be newly emerging destinations which are not yet established as safe places to visit and have yet to develop a global brand. In contrast, highly developed destinations – of which Hong Kong is one – are more likely to regain their previous visitor levels relatively quickly following a period of turmoil.

Within the Asia-Pacific region, Thailand and Fiji both serve as examples. Thailand experienced a political crisis that resulted in a military coup. However, there was only one year which saw negative growth in visitor numbers following the coup, and Thailand was able to recover quickly. Fiji has experienced several coups since gaining independence but none of them has had any long-lasting effects, even though Fiji is not the cheapest tourist destination in the world nor easily reached.

We can also take Hong Kong as an example. In 2014, the Occupy Central movement effectively shut down Hong Kong’s city centre. However, it is hard to assess what direct impact the movement may have had. There was no reduction in overall visitor numbers during the months of the Occupy Central protest, but a fall was seen later in 2015.

It is important to note that Occupy Central occurred at the same time as the commodity prices crisis, which witnessed the devaluation of many global currencies. Furthermore, 2015 was also a year which saw several anti-tourist and anti-parallel trading protests . While visitor numbers to Hong Kong dipped in 2015/16, they recovered rapidly in 2017/18.

Hong Kong enjoys worldwide recognition, it has great transportation and infrastructure, and it is a unique city with many attractions and a highly skilled workforce. Unless the events develop dramatically to the extent that most of the above is lost, Hong Kong’s tourism sector is likely to recover quickly.

So far, the image of Hong Kong as an open international city has been threatened, but not tarnished. In the meantime, it would be wise for managers and policy-makers to plan on how to diversify inbound markets, improve tourism offerings in Hong Kong, shift the focus away from bare numbers to designing memorable and transformational experiences, and become more responsible and operate in a way that contributes to the wellbeing of Hongkongers while taking care of the environment.

These are difficult times for all Hongkongers, whichever side of the political divide they are on. Nevertheless, the Lion Rock spirit of overcoming hardships and striving for a better life persists. Hong Kong is an exciting city that touches the hearts of all those who visit or live here. Hopefully, soon Hong Kong will be able to welcome visitors again and demonstrate its spirit once more.

Denis Tolkach is an Assistant Professor at the School of Hotel and Tourism Management at Hong Kong Polytechnic University. His research focuses on sustainable tourism development and tourism ethics. He recently co-authored an article on the ‘ Ethics of Chinese and Western Tourists in Hong Kong’ which can be found here .

*Articles published by The Asia Dialogue represent the views of the author(s) and not necessarily those of The Asia Dialogue or affiliated institutions.

The drop in tourism in Hong Kong is causing difficulties for hotels and retailers in general. However, in the long run, it may not be a bad thing. The reason is that tourists in Hong Kong mostly spend on imported products, and the effect of tourism on the GDP growth is relatively small. What tourism has provoked is a high increase in the number of shops selling goods for tourists (jewelries, shop selling beauty products, electronics, etc.) and a decrease in the number of shops selling goods for locals. Since the first category makes more profits than the second one, it allowed for a high rise in shop rentals, which benefit mostly from shop owners. A decrease in the number of tourists may help to rebalance the retailing sector in the medium to long term. Finally, it should be noted that the number of tourists (over 65 millions in 2018) is too high for a territory like HK (7.4 million people in a small city) — implying that facilities such as transportation are strained.

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