Transfer of Shocks between Holiday Homes and Inbound Tourism in South Africa: The Roles of COVID-19 and Exchange Rates

The aim of the study is to examine the bi-directional shock transmission, and causal relationship between international inbound tourist volume (Arrivals) and Holiday Towns Index (HDI), national House Price Index (HDI), and exchange rates (US Dollar per South African Rand exchange rate, USDZAR) in South Africa. The study is premised on the shocks in the tourism sector by the COVID-19 pandemic and its spillover to short-term accommodation and other variables in tourism-dependent countries like South Africa. Quarterly data between 30th June 2000 to 30th September 2021 was used. The study used statistical techniques that can reveal the non-linear, asymmetric, time-varying, and time-horizon dependent complex relationships among the variables. The study employed the time-varying parameter vector autoregression (TVP-VAR) connectedness approach which can reveal the complex dynamic relationships among the variables to reveal pre-pandemic, pandemic, and post-pandemic periods. The results indicate that ARR drives both HDI and USDZAR at the total level and frequency bands. The USDZAR reduced the risk/shock transmission between Arrivals and HDI across time and frequency bands. The total and frequency band connectedness reflected those of time-horizons. Our findings have implications for both policy and tourism-related businesses and economic growth in South Africa. There is a need to pursue a healthy blend of the economic gains from tourism and over-dependence and environmental sustainability concerns. It may also be important to include exchange rates of the South African Rand with other neighbouring currencies to gauge better its role in the tourism-housing price nexus.