**1. Introduction**

Every year, numerous travelers from all over the world visit China for its beautiful scenery, renowned world heritage sites, and mysterious oriental culture. The expansion of the tourism industry has greatly benefited several relevant industries in China, such as tourism product manufacturing, transportation, hotels, and retail businesses [1]. Overall, the tourism industry has effectively promoted macroeconomic growth in many Chinese regions. According to a report released by China's Ministry of Culture and Tourism [2], in 2018, the tourism sector's total contribution to China's gross domestic product (GDP) was 9940 billion CNY, accounting for 11.0% of GDP. Additionally, the tourism sector contributed roughly 28.3 million jobs directly and 51.7 million jobs indirectly. These two numbers together accounted for 10.3% of total employment in China. The World Travel and Tourism Council forecasted that in 2028 the total economic contribution of tourism in China could reach 18,462 billion CNY, as much as 12.9% of GDP. The contribution to job creation was forecasted to be 116.5 million in total, as much as 14.7% of total employment in the coming decade [3].

However, aside from its substantial growth in the past few decades, tourism in China still has problems that need to be dealt with. One of the most obvious problems is the huge difference between the levels of inbound and domestic tourism. Figure 1 shows the number of inbound and domestic tourist arrivals in China between 2010 and 2018. It can be seen from the figure that the growth of inbound tourist arrivals has remained stagnant in recent years. Since 2010, the number of inbound

tourist arrivals vacillated between 128 and 141 million person-times. It even decreased in several years (e.g., the annual growth rate was −2.5% in 2013). In contrast, during the same period, the number of domestic tourist arrivals rose from 2103 to 5540 million person-times with an average annual growth rate of 12.9%. Concerning the revenues from tourism industries, the inbound tourism market in China is also much smaller than domestic tourism, though not shown in the graph. According to the official data, from 2010 to 2018, the annual inbound tourism receipts increased from 46 to 127 billion USD (i.e., from 310 to 841 billion CNY) while domestic tourism receipts grew from 1258 to 5128 billion CNY.

**Figure 1.** Number of inbound vs. domestic tourist arrivals in China (2010–2018). Data source: Yearbook of China Tourism Statistics published by the National Bureau of Statistics of China.

The development of China's inbound tourism not only lags behind domestic tourism, but also far behind the average level in the world. Figure 2 shows the ratios of inbound tourist arrivals to local population in China and some other countries. (In the graph, we only demonstrate the circumstances in other four Asian countries, including India, Japan, South Korea, and Thailand, which have evident geographical or cultural similarities to China. The essential finding would not be changed if we take into account other countries for comparison.) It is apparent that the ratio in China is much lower than that in many other countries. For instance, in 2016, the ratios in South Korea and Thailand were around 34% and 47%, respectively. However, in China, the ratio was only slightly more than 4%. The world average ratio was around 17%, approximately four times the ratio in China. Additionally, from the perspective of inbound tourism receipts, China is still far behind other large economies. According to data provided by the World Bank's World Development Indicators (WDI) dataset, in 2016, the international tourism receipts-to-GDP ratio in China was only 0.4%, much less than Japan's 0.7%, USA's 1.3%, and France's 2.5%.

In order to find effective strategies for promoting China's inbound tourism, it is important to evaluate the causes of stagnation in inbound tourism growth. There is no doubt that air quality is a crucial factor in the selection of tourist destinations [4–8]. Tourists care about air quality for at least two crucial reasons. First, air pollution causes considerable health risks. The medical literature has reported that air pollution is closely correlated with the incidence of mental and emotional depression, and respiratory and cardiovascular diseases [9–11]. Second, severe air pollution significantly impairs the visibility of air in scenic spots. This will heavily reduce the aesthetic enjoyment and pleasure obtained by tourists, and lower their willingness to travel and visit [12,13]. Therefore, it is expected that air pollution would have a negative influence on the number of tourist arrivals.

**Figure 2.** Ratio of inbound tourist arrivals to local population in China vs. other countries (2010–2016). Data source: World Bank's World Development Indicators (WDI) dataset. Statistics shown in this graph are only for overnight visitors.

In recent years, China suffered severe haze problems much more frequently than before, which showed a deterioration of air quality. According to the 2018 China Environment Bulletin published by the Ministry of Ecology and Environment of China [14], 217 out of 338 cities in China failed to meet the preferred standard of the air quality index (AQI). The air pollution problem in China is indeed severe compared to many other countries in the world. Figure 3 shows the severity of air pollution, measured by the proportion of population exposed to particulate matter with a diameter of 2.5 micrometers or less (PM2.5) pollution levels exceeding World Health Organization (WHO) Interim Target-1 value (i.e., 35 μg/m3), in different countries. The higher the proportion, the severer the air pollution. In 2016, 81% of Chinese residents were exposed to PM2.5 pollution levels exceeding WHO Interim Target-1 value. This proportion was substantially higher than the world average of 51%. Many countries with developed inbound tourism industries had low levels of air pollution. For instance, the value was 0% in Japan and South Korea, and 3% in Thailand. The haze problem not only affects the daily lives of local residents, but also substantially decreases the willingness of tourists to visit the destination. One impressive example is that, in 2013, due to the severe smog problem, the number of foreign visitors to Beijing declined by roughly half in the first three quarters of the year [15]. Combining Figures 2 and 3 together, we can also observe a negative relationship between air pollution and tourist arrivals from the cross-country comparison. Particularly, China and India have high levels of air pollution and low levels of tourist arrivals-to-population ratio. In contrast, Japan, South Korea, and Thailand have low levels of pollution and high levels of tourism development. Although the figures sugges<sup>t</sup> some preliminary evidence about the adverse effect of air pollution on China's inbound tourism, the graphical observations are not sufficient to accurately evaluate the impact of air pollution. A quantitative assessment based on statistical methods is required.

**Figure 3.** Severity of air pollution in China vs. other countries (2010–2016). Data source: World Bank's World Development Indicators (WDI) dataset. Abbreviations: PM2.5, particulate matter with a diameter of 2.5 micrometers or less; WHO, World Health Organization.

The purpose of this study was to assess the impact of air pollution on China's inbound tourism. Although several previous studies have empirically investigated the same research topic, there was no consensus on the magnitude of the impact of air pollution. For example, Liu et al. [16] used PM2.5 to measure the degree of air pollution in 17 undeveloped provinces in China during 2005–2015, and reported that air pollution had no statistically significant effect on inbound tourist arrivals. Differently, a study by Tang et al. [17] indicated a significant and large impact of air pollution. They focused on Beijing City, and reported that the number of inbound tourists from major origin countries would decline by around 2%, if the AQI in Beijing rose by 1%. Given the large contribution of tourism to regional economic development (e.g., [1,18–20]), understanding the extent to which air pollution influences tourism is important. If the impact of air pollution is really large, communities, industrial sectors, and governments should consider clean air as a priority in tourism development strategies and make large collaborative efforts to mitigate pollution. If the impact is small, policy-makers might need to focus on other factors, such as tourism advertising and infrastructure construction, in order to promote local tourism industries. In addition, a precise estimation of the impact of air pollution will improve the reliability and accuracy of tourism demand forecasting, and hence facilitate the managemen<sup>t</sup> and marketing of local tourism resources in practice.

This study contributes to the literature in several aspects. First, this paper utilized a gravity model with province-level data to estimate the influence of air pollution on inbound tourism in China. By containing a wide set of control variables suggested by the literature and taking the possible endogeneity issue into account in the regression analysis, this study attempted to provide a more accurate and reliable estimate. Second, this study explored possible heterogeneities among different tourist groups, which have not been analyzed in previous literature. Particularly, it was found that inbound tourists coming from different origin countries and visiting different destination regions responded to air pollution dissimilarly. Overall, according to the study results, it can be inferred that, if the air quality in China can be substantially improved, inbound tourist arrivals have the potential to rise by at least tens of millions of person-times. This study demonstrates that there is a bright market prospect for China's inbound tourism.

The rest of the paper is organized as follows. Section 2 presents a literature review and develops the hypotheses. Section 3 describes the empirical model and data. Section 4 reports the estimation results based on the empirical model. Section 5 discusses the results and associated implications. Finally, Section 6 concludes the paper and talks about directions for future studies.

#### **2. Literature Review and Hypothesis Development**

Intuitively, a contaminated environment impedes the willingness of potential tourists to visit. Based on the relevant literature, the mechanisms through which air pollution affects tourism can be roughly summarized as follows. First, air pollution poses grea<sup>t</sup> health risks to tourists [21,22]. For instance, air pollution is directly correlated with the exacerbation of asthma, higher incidence of cardiovascular diseases, and increase in mortality [9,11,23]. Second, air pollution impairs the visibility of air in tourist attractions. This matter harms the aesthetic features of sceneries and tourist experiences, and sometimes causes traffic delays. As a result, tourists tend to have negative impressions and the destination images are damaged [12,13,24]. In addition, air pollution possibly has subtle impacts on the psychological status and behaviors of tourists, though they may not realize that. For instance, a recent study by Zhang et al. [25] reported that tourists who perceive severe air pollution in a destination are more likely to be suspicious of local service suppliers. Medical research also reported that air pollution causes more occurrences of mental and emotional troubles such as depression [10], which would reduce the happiness obtained from travelling and leisure activities. Overall, the literature indicated that air pollution could exert adverse impacts on tourists both physically and psychologically. It is reasonable to argue that air quality is a critical influential factor in tourism development.

#### *2.1. Impact of Air Pollution in China*

A set of studies have quantitatively revealed the harm of local air pollution to inbound tourism in China. The studies included Becken et al. [24], Deng et al. [26], Dong et al. [27], Tang et al. [17], Xu and Reed [28], Xu et al. [29], Zhou et al. [30], and Zhou et al. [31] on different districts in Mainland China; Cheung and Law [32] and Law and Cheung [33] on the Hong Kong SAR of China; and Chen et al. [34] on the Sun Moon Lake scenic area in the Taiwan Province of China.

Several studies inspected potential tourists' intention to visit China. For example, Becken et al. [24] surveyed hundreds of American and Australian residents about their contemporary views on China as a travel destination. Their findings showed that potential travelers expressed negative views about travel risks in China caused by poor air quality. Xu and Reed [28] suggested that people's perception of pollution levels substantially impeded tourism, by using Google Trends data as a proxy for tourism demand.

Some studies estimated the impact of air pollution on the actual level of inbound tourism. For instance, for one single scenic spot, Sun Moon Lake, Chen et al. [34] stressed the negative effect of air pollution on the business cycle of tourism demand, and reported that the monthly number of visitors would decrease by 25,725 person-times if the number of days with air pollution increased by one day during peak times. Using panel data on 31 Chinese provinces during 2001–2013, Deng et al. [26] reported that industrial waste gas emission had a significant negative correlation with tourist arrivals in different provinces. Dong et al. [27] found that the concentration of particulate matter with a diameter of 10 micrometers or less (PM10) significantly reduced both inbound tourist arrivals and tourism receipts, based on data for 274 cities during 2009–2012. Moreover, they reported that the estimated impact was stronger after controlling for endogeneity in the econometric analysis. Tang et al. [17] quantified the impact of air quality on inbound tourism in Beijing, and found that air pollution, measured by AQI, had a negative effect on tourist arrivals in the long run, but not in the short run.

Following the findings in previous studies, the first hypothesis in this study was established as follows:

**Hypothesis 1.** *Air pollution in China negatively affects its inbound tourism.*

Obviously, this hypothesis is not novel, as it has been tested in several previous studies. However, most of those studies did not distinguish inbound tourists according to their countries of origin, and hence did not include the characteristics of tourist origin countries and the interactive factors between origin and destination regions as explanatory variables in the econometric analysis. In consequence, important explanatory variables might be neglected and so-called "omitted variable bias" might cause the estimated effect of air pollution to be insufficiently accurate and reliable. Therefore, re-estimating the impact of air pollution on tourism within a gravity model, which explicitly controls for variables reflecting the features of origin regions and origin–destination interactions, is valuable.

#### *2.2. Impact of Air Pollution in Tourist Origin Countries*

It is notable that tourism might be affected by air pollution not only in destination areas, but also in tourist origin regions. Based on a sample covering 11 Chinese cities, Wang et al. [35] reported that air pollution in China stimulated Chinese residents' outbound tourism demand. Given that the air pollution problem is severe in China relative to many other countries, this demand-inducement effect of local air pollution on outbound tourism reported by Wang et al. [35] is convincing, as Chinese people have many options for outbound travel destinations with good air quality. However, the same effect might not occur when the focus is on tourist flows from foreign countries to China. Even though the pollution in foreign countries stimulates the outbound tourism demand of foreign tourists, they may not choose China as a preferred travel destination because they would like to visit places with good air quality. Therefore, it was conjectured that the air pollution in foreign tourist origin countries might not have a positive impact on China's inbound tourism.

Even worse, potential tourists living in foreign countries may have less preference for China as a destination if the air quality in their home countries deteriorates. This is because local air pollution raises residents' awareness of and concern about the pollution problem, which has been confirmed by previous environmental literature. For example, Deguen et al. [36] interviewed around 2500 inhabitants in France to examine the association between air pollution and public perception of air quality. They reported that the measure of air quality perception (including sensory perceptions, symptoms and risk perception) significantly increased with the local air pollution level. Similar findings about the positive correlation between local air pollution and inhabitants' awareness of and concern about pollution were also reported by some other studies, such as Atari et al. [37] in Canada, Moffatt et al. [38] in the UK, and Oglesby et al. [39] in Switzerland among others [40,41]. Nowadays, the usage of Internet even amplifies the air pollution risk perception of people [42]. In a nutshell, if the degree of air pollution in tourists' origin countries increases, on average, tourists probably care more about pollution and become less willing to visit China. Following this logic, the second hypothesis in this study was formulated as follows:

**Hypothesis 2.** *Air pollution in foreign tourist origin countries negatively affects China's inbound tourism.*

#### **3. Empirical Model and Data**
