# **VI. Concluding remarks**

This note uses a multidimensional approach to estimate the determinants of international tourism and to produce a partial equilibrium analysis of the tourism sector in STP. The tourism industry is analyzed using different determinants highlighted in the literature as important. The main empirical findings, general and specific to STP, can be summarized as follows: The first set of general findings confirms most of the results found in the literature. GDP in the issuing country and the exports of the host country are positively associated with tourism. Higher flight connectivity increases tourist arrivals but does not change 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.

A causal analysis is performed to evaluate the effect of decriminalization of LGBT and large positive effects are observed. Using a difference-in-differences approach of a dummy variable that takes the value 1 if being LGBT is not a crime in the country and zero otherwise, the dummy is positively associated with tourist arrivals although there is no relationship with per capita spending.

The data obtained on digital presence indicators are partial and from a short period, which limits the ability for meaningful statistical analysis. The preliminary data analysis using Instagram posts reveals high visibility for STP, however with great variability across time. As the literature speculates on the positive effects derived from digital presence, this should be encouraged at all levels. The empirical evidence for other destinations reveals that tourism is positively related to digital presence. As such, investing in digital visibility is likely to have a positive effect on the arrival of tourists.

Using a comprehensive list of determinants, the empirical analysis reveals that STP can do better in terms of the number of tourist arrivals, but it has a good performance in terms of expenditures per tourist. Using a hedonic model of tourist arrivals and expenditures per tourist, STP has a lower number of tourists in 2016 than what would be otherwise predicted with the model, but spending by tourists is larger than what the model finds.

The empirical analysis confirms the importance of improving air connectivity in the island. STP can receive more tourists because it has a low ratio of tourists-to-population and land area, however, flight demand meets supply as measured by seats sold on incoming flights. Therefore, the country needs to increase air connectivity. STP ranks low in centrality indexes in networks using flight data. Its major flight origin is Lisbon, which means that many of the European tourists need to fly to Lisbon first. As connections reduce utility and propensity to spend at the destinations, STP might benefit greatly from having connections to central hubs. A simple exercise simulating a connection to London reveals major changes in centrality. The tourism elasticity with respect to the seat availability on the flights is of the order of 0.1.

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