Thursday, October 2, 2014

US Tourism in Canada

US travelers make up the vast majority of tourists visiting Canada.  After reaching a peak of 88 % in October 1985, the share of US travelers fell to the all-time low of 70.6 % in July, this year. The common border and the English language the two countries share, the reciprocity agreements, and the acceptance of the US dollar as means of payment explain in large the importance of the US tourism in Canada.

Total Number of Non-Resident Tourists and US Travelers Entering Canada, 1981:M1-2014:M7, Source: Statistics Canada
Figure 1: Total Number of Non-Resident Tourists and US Travelers Entering Canada, 1981:M1-2014:M7, Source: Statistics Canada
A growing proportion of US residents entering Canada travel by plane and more than half of them travel by car. A part from the geography, the culture, and the agreements between the two countries, there are economic factors that influence US residents in their decision to travel or not to Canada and in their choice of transport mode. Two of these factors are: the price of gasoline and the US dollar exchange rate.

The Price of Gasoline
The correlation between the consumer price index (CPI) of gasoline in the US and the number US travelers entering Canada by car is negative and high, -.61, more precisely. In the meantime, the correlation between the CPI of gasoline and the number of US travelers entering Canada by plane is of the opposite magnitude, .59. This means car users change their mind as the price of gasoline increases: some give up traveling to Canada whereas others switch transport mode. 

Number of US Residents Entering Canada by Car and by Plane, and CPI of Gasoline in the US, 1981:M1-2014:M7, Sources: Statistics Canada and Federal Reserve Bank
Figure 2: Number of US Residents Entering Canada by Car and by Plane, and CPI of Gasoline in the US, 1981:M1-2014:M7, Sources: Statistics Canada and Federal Reserve Bank
In 1986, when oil price collapsed due to superabundant non-OPEC production, the number of US travelers visiting Canada by car soared. Conversely, the rise in oil price since the 2008 economic crisis discouraged car use.

The Exchange Rate
US residents entering Canada by car seem to watch closely the evolution of the US dollar exchange rate and decide to travel when  the US dollar is high, i.e., when they can get more for their money in Canada. The correlation coefficient between the number of US visitors using cars and the exchange rate is .82. This is not at all the case for those visiting Canada by plane. 

Number of US Residents Entering Canada by Car and by Plane, and the US Dollar Exchange Rate in Canadian Dollars, 1981:M1-2014:M7, Source: Statistics Canada
Figure 3: Number of US Residents Entering Canada by Car and by Plane, and the US Dollar Exchange Rate in Canadian Dollars, 1981:M1-2014:M7, Source: Statistics Canada
The number of US travelers entering Canada by plane and exchange rate is uncorrelated. These travelers might either be people on business tours or people only chasing travel deals (ticket and accommodation)