Does air pollution drive away tourists? A case study of the Sun Moon Lake National Scenic Area, Taiwan

- The paper focuses on the impact of air pollution on tourism demand.
- Air pollution events at Sun Moon Lake constitute a case study.
- Markov regime-switching model based on time series data are estimated.
- The number of tourists in peaks is negatively associated with that of bad-air days.

Tourism is evidently one of critical contributors to air pollution, while, air pollution seems to drive tourists away. This paper aims to explore whether air pollution, especially the carbon dioxide emission, would affect the business cycle of the demand for tourism at a popular scenic spot in Taiwan, i.e., the Sun Moon Lake. Macroeconomic variables and additional weather patterns are also considered as potential determinants of the demand for tourism in our Markov regime-switching model. The empirical results serve as evidence that the effects of air pollution and rainfall on the demand for tourism depend significantly on the phases of business cycle, and show that, during the peaks, monthly numbers of tourists traveling at the Sun Moon Lake would fall by 25,725 people as the number of bad-air-quality day increases by one. The finding can provide policymakers an insight into the evaluation of the trade-off between industrial development and environmental protection.