# **I. Introduction**

The purpose of this paper is to empirically evaluate the main determinants of tourist arrivals and expenditures that have been found in the literature, incorporating new explanatory variables, and then assess the tourism performance of São Tomé and Príncipe (STP). The economic literature has established that international trade is one of the causes of economic growth.<sup>1</sup> This relationship can also be extended to the tourism sector, which is a service export.<sup>2</sup> STP is a small-island African country in the Gulf of Guinea, in which tourism is a comparative advantage, but it is far from the characterization of a tourism-dependent small economy. The empirical examination of the determinants of tourism aims to help STP and other small islands to understand what can be done to spur tourism growth.

The economic literature shows that tourism demand is affected by not only price and income, but also a host of other factors, such as air connectivity, language, and culture, among others. First, there is an extensive research agenda on measuring price and income elasticities of tourism, which is specific for different types of tourism destinations. Second, there is a myriad of characteristics that are found to be important to the tourism industry, such as remoteness, language, culture, air connectivity, bilateral trade, etc. More recently, there have been many studies emphasizing the role of digital media and digital presence<sup>3</sup> as a key determinant of tourist decisions. Finally, the models were expanded to investigate the link between acceptance of lesbian, gay, bisexual, and transgender (LGBT) people and its impacts on tourism.

Following the literature on determinants of tourism demand, several empirical approaches were applied and yielded general findings applicable to all countries and some specific to STP. This paper constructs a database from different sources to provide a complete picture of tourism statistics and explanatory variables. Different statistical models were used to establish correlations and, whenever possible, to establish causation.

The first set of general findings confirms most of the results found in the literature. Gross domestic product (GDP) and exports of the host country are positively associated with tourism. Higher flight connectivity increases tourist arrivals but does not change average expenditures per tourist. Tourist decisions are influenced by relative price variations, which means that a real exchange rate depreciation has a positive effect on arrivals and a negative effect on expenditures. Finally, tourist arrivals and expenditures per tourist have a persistent effect, meaning that increases in one year tend to be maintained in future years.

The second general finding is that positive attitude towards LGBT population, as measured by decriminalization, is associated with an increase in tourist arrivals. A causal analysis was performed to evaluate the effect of decriminalization of LGBT and large positive effects were observed. Using

> 1 See Frankel, J. A., & Romer, D. H. (1999). Does trade cause growth? American Economic Review, 89(3), 379399 and Alcalá, F., & Ciccone, A. (2004). Trade and productivity. Quarterly Journal of Economics, 119(2), 613646.

> 2 See section II for a review of the literature.

> 3 Digital presence is how a business, in this case a tourism destination, appears online in all forms possible: website, social network, mobile, review sites, etc.

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