Tourism demand and economic growth in Spain: New insights based on the yield curve

Abstract

This study examines for the first time the dynamic relationship between tourism growth and expected macroeconomic conditions of the destination country using a DCC-GARCH model. The focus is on the Spanish economy in which monthly tourist arrivals data from 1998 to 2017 were collected for five key origin countries and around the world. To capture expected macroeconomic conditions, the Spanish term structure of interest rates is used. The results suggest that the tourism-expected economic growth relationship is time varying without any country-specific differences in the behaviour of the correlations. Importantly, positive correlations reportedly coincides with a regime shift in the Spanish economy; whereas negative correlations are evident when expected economic conditions are stable. It is also shown that the aforementioned relationship is influenced by key geopolitical and economic events (the 9/11 terrorist attacks, Global Financial Crisis and the ECB's quantitative easing programme). Finally, policy implications derived from the main findings are discussed.