The effects of exchange rate depreciations and appreciations on the tourism trade balance: the case of Spain

Abstract

Considering the high current account deficits worldwide and the growing importance of tourism to GDP in many countries, the impact of the exchange rate fluctuations on the tourism demand and on the current account of the balance of payments became crucial during the last decades. That is why many researchers focused on studying this impact in the context of different exchange rate regimes. Tourism has a significant positive impact on Spain's trade balance, because Spain ranks 1st globally if we consider tourist arrivals. FED proceeded to many adjustments of its currency against other currencies to boost tourism industry. Thus, we estimated the impact of the exchange rate on trade balance in tourism with Turkey in the short and long run by using the non-linear ARDL cointegration approach because Turkey is the one of the main trade partner of Spain and this bilateral relation has not been studied so far in the economic literature. Our results show that the Euro depreciation boosts Turkey tourist arrivals, while the Euro appreciation is not significant for Spain's tourism balance. Based on these results, we designed some policy recommendations.