An investigation of demand and exchange rate shocks in the tourism sector

Abstract

Purpose This study aims to measure the relationship between demand and exchange rate shocks in the tourism industry. Design/methodology/approach A panel data set is constructed covering the period between 1995 and 2017, and the data set includes the top 26 countries that host 10 million tourists and above in the world as of 2017. The standard errors of the series are used as an indicator of shocks. First, the cross-sectional dependency, stationarity and the homogeneity of the series are examined; second, a panel cointegration analysis is implemented; third, long-term panel cointegration coefficients are analyzed with Dynamic Common Correlated Effects (DCCE) approach; and, finally, Dumitrescu and Hurlin’s (2012) Granger non-causality test is used to detect the causality. Findings The preliminary analyses show that the variables are cross-sectional dependent and heterogeneous and are stationary in their first difference; hence, the effects of the shocks are temporary. On the other hand, as a result of the panel cointegration analysis, it is found that both series are cointegrated over the long-term. However, the long-term coefficients estimated with the DCCE approach are found not to be statistically significant. Finally, as a result of the Dumitrescu and Hurlin’s (2012) Granger non-causality test, it is concluded that there is a causality running from exchange rate shocks to demand shocks. Originality/value To the best of the authors’ knowledge, the cointegration between the tourism demand shocks and exchange rates shocks has not been investigated before, and therefore, this study is considered to be a pioneering study that will contribute to the literature.

Growth-Led Tourism and the Role of Exchange Rate

“…Similarly, the exchange rate significantly increases tourism receipts at the 5% significance level. This result also conforms to previous findings (Ergen & Yavuz, 2017;Meo et al, 2018);Chi, 2020;Athari et al, 2020;Boskurt et al, 2021). This intuitively implies that the increase in of Sri Lankan Rupee to the US dollar (depreciation) will increase the demand for tourism, increasing the tourism receipt.…”

The impact of exchange rate and exchange rate volatility on tourism demand using disaggregated data

“…Vanegas and Croes also found the exchange rate to be an insignificant determinant of tourism demand to Aruba from the United States. These findings were supported by other studies such as Baran et al (2019), Bozkurt et al (2021) Catalbas (2016), Cheng et al (2013, Dhaoui et al (2017), Dogru et al (2017), Glauco andKhine (2013) and Samirkas and Samirkas (2015).…”

Moderation analysis of exchange rate, tourism and economic growth in Asia

“…Exchange rate has PLOS ONE asymmetric impact on tourism on tourism development in developing countries such as, India, Bangladesh, Pakistan and Nepal in the short run [41]. Boskurt et al [42] applied dynamic common correlated effects (DCCE) approach in their study on demand and exchange rate shocks on tourism development and concluded that effects of the exchange rate shocks are temporary on the tourism development. To examine the response of tourism demand to exchange rate fluctuation in South Korea, Chi [43] used ARDL model and concluded that tourists are sensitive to the appreciation of the Korean Won, whereas they are insensitive to its depreciation.…”

“…Existing literature have found a positive relationship between different dimensions of tourism and economic growth [61][62][63][64][65]. The second key explanatory variable is exchange rate [42,[66][67][68]. The exchange rate captures the competitiveness of a country in the international market [69][70][71][72][73].…”