INTERNATIONAL MEDICAL TOURISM: The Nonlinear Impact of Exchange-rate-adjusted Relative Prices

The Global Medical Tourism report by Grand View Research, 2023, indicates that low-cost Asian countries, including India, are beneficiaries of increasing international medical tourist traffic to Asian countries due to technological advancements and the improved quality of medical services. However, literature identifying the determinants of international medical tourism is scanty. Most studies in this domain are micro studies, lacking generalization of results even in a given country context. The research paper titled INTERNATIONAL MEDICAL TOURISM: The Nonlinear Impact of Exchange-rate-adjusted Relative Prices contributes to the existing literature on medical tourism in three distinct ways. First, it adds to the scanty literature on medical tourism demand by exploring the determinants of medical tourism at the macro level. Second, unlike most existing micro-studies on the subject, which lack a sound theoretical basis, this study uses the theoretically sound augmented gravity model framework. Augmented gravity framework enables examination of the impact of factors considered in traditional consumer demand theories along with the structural factors considered in the gravity model. Third, this study is the first to address the non-linearities in the impact of exchange-rate-adjusted relative prices on the demand for medical tourism. Although the study findings, in general, support the theoretically well-established negative relationship between the price and the demand, they present evidence of a non-monotonic relationship between relative prices and international medical tourism flow to India. Contrary to the general perception that the low cost of services is the main reason for higher international medical tourists to the country, the nonlinear impact suggests that very low prices may not be demand boosting. The findings of the study have significant policy and marketing implications. The study's findings suggest that policymakers and medical practitioners in India should target potential medical tourists in nearby countries with bigger market sizes and prices that are not very low but still within the affordable range. The study findings are subject to limitations arising from the unavailability of long-time series data for India and similar data for other countries. But, by highlighting non-linearities in the price impact, they can spur further work in this direction as and when new data arrives. By advancing the understanding of the impact of price on medical tourism demand, the study provides a new direction of thinking for researchers and policymakers.