Beyond fiscal gains: the visa waiver policy as a strategic catalyst for Indonesia’s tourism competitiveness

Synthesizing institutional economics and tourism governance, this study evaluates Indonesia’s Visa Waiver Policy (BVK) as a transaction cost-reducing instrument and spatial redistributive mechanism. Using a Difference-in-Differences (DiD) specification with two-way fixed effects on panel data from 2013 to 2019, this study finds that the implementation of BVK is associated with a statistically significant 19.9% increase in international tourist arrivals (p = 0.033). However, given potential pre-treatment trend differences, these results offer suggestive causal evidence rather than definitive proof of a policy-induced effect. Conversely, its 2023 suspension triggered a sharp contradiction, leaving Indonesia trailing ASEAN competitors in the 2024 Travel & Tourism Development Index. Addressing this policy shift, quantitative forecasting provides evidence-based projections: reinstating BVK for 20 priority nations could yield 9.62 million arrivals, a 1.60 million surge over baseline, generating USD 741 million to USD 1031 million in economic value. This net positive return far outweighs the USD 361 million fiscal loss in no-tax state revenue. Ultimately, this research offers novelty by reframing visa liberalization as a strategic investment catalyst and advocating for adaptive, data-driven evaluation cycles.