Determinants of Inbound Tourism Demand and the Impact of the Dual Exchange Rate System (Official and Parallel) in the Kurdistan Region of Iraq: An Econometric Study (2005–2024)

Abstract

This study aims to measure and analyze the determinants and elasticity of inbound tourism demand in relation to the dual exchange rate system (official and parallel) of the Iraqi dinar in the Kurdistan Region during the period 2005–2023. The research problem stems from price uncertainty arising from the gap between the two rates and the impact of external shocks on the sustainability of tourism activities. The study adopted a descriptive, analytical, and quantitative econometric approach using a double-log regression model estimated with the least squares (LS) method directly estimates elasticity coefficients. Stationarity tests (ADF), structural stability tests (CUSUM), and bidirectional Granger causality tests were conducted using SPSS and EViews 12 software. The results revealed the model's high explanatory power, accounting for 87% of the variation in tourism demand. The econometric estimation showed that demand exhibits a positive elasticity of +0.71 with respect to the parallel exchange rate, meaning that a 1% depreciation of the local currency is associated with a 0.71% increase in tourist flows. Lagged demand emerged as the strongest determinant, with an elasticity coefficient of 0.59, underscoring the importance of persistence in the sector's sustainability. The results demonstrated a significant response to the employment variable, while the crisis variable (DUM) exhibited the expected negative sign, confirming that stable security and health conditions are prerequisites for realizing price advantages. Causality tests revealed a bidirectional causal relationship between tourism and employment, reinforcing the sector's developmental linkages. The study recommends leveraging the price advantage in the parallel market through targeted international marketing strategies, while emphasizing the need to strengthen the sector through crisis management protocols to ensure sustainable growth. Keywords: Tourism demand elasticity, parallel exchange rate, double logarithmic model, Kurdistan Region, security stability.