The Wealth Effect and Tourism – ARDL Modeling and Granger Causality in Selected EU Countries

Abstract

Purpose – The purpose of this paper is to examine the relationship between various forms of income/wealth and tourism departures in selected European Union (EU) countries. Design – The design of this study is based on analysing quarterly data on incomes, house prices, net financial assets, financial derivatives and employee stock options in order to measure the link between wealth and tourism departures in selected countries—Austria, Belgium, Germany, Denmark, Spain, France, Ireland, Italy, Sweden, Slovenia and the United Kingdom (UK)—with individual-country time series that span the period from 2000 to 2018. Methodology – Granger causality in the relationship between income and wealth inputs and tourism departures has been examined using the autoregressive distributed lag model (ARDL), the bounds test for cointegration, the vector error correction model (VECM), and long- and short-term (as well as joint) causality. Findings – The findings showed the existence of cointegration and a direct effect on the relationship between various sources of wealth/income and tourism departures in both the longand short-run, and jointly, only in the case of Austria. House price, net financial asset and stock option causality results essentially showed unidirectional causality that runs from that form of wealth to tourism departures in the case of Belgium, Germany, Spain, France, Slovenia and the UK, thus providing extensive support for the wealth effect–tourism link in certain countries. Originality of the research – The originality of this paper stems from the fact that it offers the first analysis of the relationship between various forms of income/wealth and tourism departures in selected European Union (EU) countries. The findings of this study suggest that a bounds test for cointegration due to data constraints should be taken into account when examining the link between the wealth effect and tourism in country time series analysis.