The Effects of Real Exchange Rates and Income on International Tourism Demand for the USA from Some European Union Countries

Serdar Ongan,Dilek Özdemir,Cem Işik

doi:10.3390/economies5040051

Serdar Ongan, Dilek Özdemir + Show 1 more

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https://doi.org/10.3390/economies5040051

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Journal: Economies	Publication Date: Dec 18, 2017
Citations: 39	License type: CC BY 4.0

Affiliation: St. Mary's College of Maryland, Atatürk University

Abstract

This paper investigates the effects of real exchange rates and income on inbound tourism demand (tourist arrivals) from Germany, France, the UK, the Netherlands, Italy, Spain, and Sweden to the USA over the period 1996Q3–2015Q1. To achieve this aim, the Harmonized Index of Consumer Prices (HICP) for Restaurants and Hotels was used for the first time—instead of using the general Consumer Price Index (CPI)—to transform the nominal exchange rate into the real exchange rate as an independent variable in tourism demand analysis models. Panel co-integration analysis under the cross-sectional dependence (CD) test and common correlated effects (CCE) approach was applied. Empirical results show that tourists visiting the USA are more sensitive to changes in the real exchange rate than changes in GDP. While French tourists respond highly to the GDP, British tourists respond highly to the real exchange rate. It should also be noted that the UK, having the highest responsiveness to the real exchange rate, is a country outside the Eurozone and also intends to leave the European Union.

Highlights

The United States is one of the most visited countries in the world and international tourism is one of the most important contributors to the country’s economy
Yazdi and Khanalizadeh (2017) applied a gravity framework for the USA with 14 countries including our sample countries. They found that the real gross domestic product (GDP) and real exchange rates adjusted by Consumer Price Index (CPI) have significant impacts on the international tourism demand of a country
Ekanayake et al (2012) applied a panel data analysis for the USA with different countries including Western European countries and found that tourism demand is elastic with respect to income but inelastic with respect to real exchange rates adjusted by CPI

Summary

Introduction

The United States is one of the most visited countries in the world and international tourism is one of the most important contributors to the country’s economy. International travelers have a major impact on the US economy; international tourists visiting the USA in 2015 spent a total of USD216.9 billion This level of spending yielded a USD61 billion trade surplus and generated one job for every 68 international visitors (NTTO National Travel & Tourism Office). While the UK was the largest European tourist market for the USA, Germany and France were the second and third largest European tourist markets, respectively, in 2015 (NTTO National Travel & Tourism Office). Besides their size in the US tourist market, there are other advantages of using these countries as the sample countries of the study They provide regular and continuous data for analyses. They enable the researchers to eliminate the effects of “visa restrictions” as one of the most important independent variables in demand tourism models.

Literature Review

Empirical Model

Econometric Methodology and Empirical Results

Findings

Concluding Remarks