The euro effect: Tourism creation, tourism diversion and tourism potential within the European Union

Abstract

This paper investigates the impact of the Economic and Monetary Union on international tourism flows across a set of 37 developed countries. To do this, an augmented gravity model is estimated using a sample of 31 European countries plus six non-European OECD countries over the period 1995–2012. Results suggest a substantial impact of the euro on intra-Eurozone tourism of between 44 and 126% when proper estimation method, control group and definition of the Eurozone are used. Moreover, evidence of tourism creation is also found. Finally, the potential tourism gains for new members and possible entrants of adopting the euro are explored. This study provides a detailed analysis on the effect of the euro on tourism flows which might be of interest for policymakers of the Eurozone or future member states.