COMPLETION REPORTThe Effect of Easing Visa Application on Tourism: Case Study Japanese-Indonesia
Dr. Muhammad Halley Yudhistira
Associate Researcher
Institute for Economic and Social Research, University of Indonesia

Since June 2015, Indonesia has issued visa-free policy for 45 countries pursuant according to Presidential Decree
No.69 Year 2015. The number of visa-free countries has been increased further to 90 countries since September
2015, and Japan is one of the countries granted visa-free. The aim of policy does not only to boost the tourist inflows,
but also to serve as reciprocal action and to strengthen the political relationship with partner countries as well. Thefacts above prompted us to conduct a study whether Indonesia visa-free policy have an impact on the arrival ofJapanese tourist in Indonesia. We further compare the results with the impact at global level. To our knowledge, thisis the first study to provide the estimates of the effect of visa exemption policy in Indonesia.
The study will evaluate and give feedback to the policy makers since tourism sector is one of the main sectors
promoted to boost Indonesian economy after the decline of agriculture and extractive sectors. The impact will beevaluated by examining tourist entrance in particular immigration check point via airports/seaports and other relevant
indicators. In addition, we will also conduct cost and benefit analysis of the policy since on one hand this policy has
potential to increase foreign citizen arrivals, but on the other hand there will be a lost in visa revenue suffered by thegovernment. The effect of policy might be relatively small, relative to other policy packages, as associated cost ofapplying the visa might be small relative to the tourists’ average expenditure. Nevertheless, our results are potential
in providing the quantitative measurement of the effectiveness of the visa exemption program or other similar
programs. To examine the average effect of visa exemption on international tourist arrivals in Indonesia, we use
three-dimensional panel regression method and employ monthly foreign tourist arrival dataset that cover 45
countries entering 19 entry-ports from January 2014 to December 2016 which are provided by National Bureau ofStatistics of Indonesia. We analyze the short-run and long-run responses as well as the region-specific impact. Hence,
we will be able to provide a clear picture of strategic and potential area for tourism development of Indonesia.

The main findings are as follow: (1) The visa-free policy series have significantly increased the average number ofmonthly foreign tourist arrival in Indonesia by a 4 - 6 percent range; (2) One-day extra for holidays in respective
month of tourists’ country of origin is associated with 0.7% increase in the number of foreign tourist arrivals inIndonesia; (3) The foreign real effective exchange rates’s appreciation has a positive association with the tourist
arrivals, which might represent local political stability and unstable political condition within an origin country; (4)The long-run effect of visa exemption policy is approximately 8% and appears significantly between two and fivemonths after the policy and is relatively constant in six months after the policy launched; (5) In the region-level, thepolicy implementation implies an increasing number of foreign visitors from America, Australia, Europe, Africa,
Southeast Asia, and Other Asia by 9.5%, 7.3%, 6.2%, 4.4%, 1.3%, and 0.1%, respectively; (6) The visa exemption
provides heterogenous impact across destinations where the tourist arrivals to Sumatera and Bali increase by 13.7%
and 4.1%, respectively, which implicitly shows that Sumatera and Bali are much more attractive compared to otherregions and thus leaving some foreign tourists to switch their destination to those regions.

Nevertheless, the impact is relatively limited to invite more Japanese tourists. Using the same dataset and model, we argue

that the limited impact is driven by slow pace of Japan’s economic growth along with tourism competition offeredby other countries. Our investigation further suggests the need of alternative strategies, such as wider tourism
promotion, in order to attract more Japanese tourists to visit to Indonesia.
To conclude, our study has shown that despite various empirical evidence of positive impact of visa exemption on foreign
tourist arrivals on average, the effect can be heterogeneous across time frame, country origin, and even tourist destination.
The visa-free policy series have significantly increased the average number of monthly foreign tourist arrival inIndonesia with the long-run response will appears about 9 months after the policy introduced, which indicates thatthe foreign tourists need time to adjust their travel plan by considering the policy and thus the maximum impact ofpolicy can be popular in a shorter period only if it is well-communicated. Nevertheless, the visa-free policy series
has a little impact to invite more Japanese tourists due to a slow pace of Japan’s economic growth along with tourism
competition offered by other countries. In order to attract more out-of-market Japanese tourists to visit to Indonesia,
we recommend to promote alternative tourism marketing strategies. For example, to introduce the digital tourism tosupport the tourist experience and to increase the co-operative marketing campaigns between the government andindustry partners (e.g. accommodation providers and air carriers).

Publication of the Results of Research Project:
Verbal Presentation (Date, Venue, Name of Conference, Title of Presentation, Presenter, etc.)
1. June 6-7th 2018, Canberra, Australasian Development Economics Workshop 2018, Can the visa-waiverprogram promote foreign tourist arrivals? Empirical evidence from Indonesia. Presenter: M HYudhistira
2. July 23-24th 2018, Surakarta (Indonesia), Indonesian Regional Science Association (IRSA) Conference
2018. Can the visa-waiver program promote foreign tourist arrivals? Empirical evidence fromIndonesia. Presenter: M H Yudhistira

Thesis (Name of Journal and its Date, Title and Author of Thesis, etc.)
Annals of Tourism Research (under review)

Book (Publisher and Date of the Book, Title and Author of the Book, etc.)-