The role of inbound tourist flows in promoting exports

Date01 May 2018
DOIhttp://doi.org/10.1111/twec.12597
Published date01 May 2018
ORIGINAL ARTICLE
The role of inbound tourist flows in promoting
exports
Zouheir El-Sahli
Department of Economics, Institute of Tax Law and Economics, Leiden University, Leiden, The Netherlands
1
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INTRODUCTION
An unprecedented number of 1.1 billion tourist arrivals was recorded worldwide in 2015. This is
almost a doubling of the 674 million arrivals in 2000. Some countries attract more tourists than
there are inhabitants.
1
At the same time, some countries depend on tourism to sustain their econo-
mies. For example, when Egypt was struck by a series of terrorist attacks between 2014 and 2015,
tourist arrivals dropped by 6% and tourism revenues by 15%
2
prompting the country to ask for a
financial rescue package from the World Bank and the IMF. It is well established that tourism pro-
vides the destination countries with much needed hard currency and aids in development and econ-
omic growth through job creation and investment.
3
Less known is whether tourism affects the
destination countriesexports. Such an effect could go both ways. On the one hand, tourism and
exports may be substitutes such that visiting a country may reduce import demand for certain
exports. For example, a trip to Scotland where the tourist can visit numerous whisky distilleries
and indulge in whisky-tasting may be seen as a substitute for consuming whisky at home and as a
result, export of whisky from Scotland is negatively affected. On the other hand, tourists are
exposed to the destination countrys products during travel which increases their awareness of
these products. Tourists may develop a taste for some of these products which in turn affects
import demand for the same products upon returning home. To take the whisky example, travelling
to Scotland may expose tourists to Scottish whisky (or new brands thereof) and this will increase
their consumption of Scottish whisky in their home countries. If this is the case, then exporting is
another channel through which tourism affects economic growth and development. This paper tries
to isolate this channel by investigating the effects of inbound tourist flows on the tourist destina-
tions exports to the touristshome countries in a country-pair panel setting. Since we are inter-
ested in tourism for leisure only, we exclude business travel from this study. To deal with
endogeneity, we use casualties from terrorism as an instrument for tourist flows to non-OECD
countries. We also construct an instrument that works for European countries based on spillovers
1
E.g., Andorra attracts 33.5 tourists per resident and Macao attracts 24.7 tourists per resident annually (source: http://www.
telegraph.co.uk/travel/maps-and-graphics/Revealed-where-tourists-outnumber-locals/). Also the numbers 1 and 3 (France and
Spain) on the list of most visited countries worldwide both received 84.5 million and 68.2 million tourists in 2015, respec-
tively, compared to their respective populations of 64 and 46 million.
2
Source: The World Tourism Organization (UNWTO).
3
See Brida and Pulina (2010) for a literature review on the effect of tourism on economic growth.
DOI: 10.1111/twec.12597
World Econ. 2018;41:14571475. wileyonlinelibrary.com/journal/twec ©2017 John Wiley & Sons Ltd
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from tourist flows to the continent. We are also concerned with the type of products that are
mainly affected by tourism. Since tourists are exposed to local differentiated products, one expects
that it is these products that are affected by tourism. Our findings support the hypothesis that lei-
sure tourism increases exports. We find that tourist flows affect the exports of processed foods
from non-OECD countries positively, but this effect is only valid for SouthNorth exports (elastic-
ity of 0.97). We also find a lagged effect for tourism on non-OECD exports that leads to higher
exports of mainly differentiated consumer goods (elasticity of 0.59) and to a lesser extent primary
foods (elasticity of 0.44). Evidence from European countries runs in the same direction. We find
both level and lagged positive effects for tourism on the exports of processed food and beverages
and differentiated consumer goods (elasticity ranging from 0.75 to 1.27) from European countries.
This paper is the first studyas far as we are awarethat uses panel techniques in a country-
pair setting to isolate and estimate the causal relationship going from leisure tourist flows to
exports. This is also the first study that sheds light on the types of products that are affected by
tourist flows. The literature has mainly focused on the relationship between tourism and trade (both
exports and imports) for a single country using time series while testing for such a relationship
using cointegration and Granger causality tests. The literature has also acknowledged the role of
business travel in promoting trade. In terms of policy, this study suggests that boosting tourist
flows has effects on domestic economic activity through exports in addition to the traditional chan-
nels of job creation and investment. It also suggests that firms can increase their exports by
increasing the touristsexposure to their products and brands.
This study is related to the relatively small literature on the relationship between tourism and
trade. Many of the existing studies apply time series analyses and cointegration techniques to study
this relationship. The findings from this literature generally confirm a two-way relationship
between trade and tourism, but the direction and magnitude of this relationship differ by study.
Kulendran and Wilson (2000) find support for a long-run relationship between international trade
and tourism for Australia. Using Granger causality, they find one-way causality from holiday travel
from Japan to exports from Australia to Japan. Kadir and Jusoff (2010) find a causal link going
from exports to international tourism receipts but not vice versa for Malaysia. They however find
a causal link running from imports to international tourism receipts. Khan, Toh, and Chua (2005)
also using Granger causality for Singaporefind evidence for a causal link between business
trips and exports only. Fischer and Gil-Alana (2009) find using long memory time series regres-
sions that tourism from Germany to Spain has an effect on Spanish wine exports to Germany that
lasts for a few months. All of these studies study the link between tourism and trade for a single
destination country and in the case of Fischer and Gil-Alana (2009) for a single product. None of
the studies in this literature uses the variation provided by the available bilateral trade and tourist
flows between many countries. Also no study apart from Fischer and Gil-Alana (2009) has any-
thing to say about the type of products that are affected by tourism.
This study is also linked to the general literature on the determinants of bilateral trade flows.
This literature mainly deploys the gravity model. First used by Tinbergen (1962) to explain trade
flows, the gravity equation was later given its theoretical foundations by Anderson (1979), Ander-
son and van Wincoop (2003), and Bergstrand (1985).
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The gravity model has since become the
workhorse for studying bilateral trade flows between countries. Numerous studies use the gravity
model to estimate the effects of a policy change or trade frictions on trade flows. Baier and Berg-
strand (2007) investigate the effects of free trade agreements on trade. Baldwin and Taglioni
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Other notable contributions to the theoretical foundations of the gravity model include Deardorff (1998) and Eaton and
Kortum (2002).
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EL-SAHLI

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