Estimating the Output Response to Tourism Spending in the Mediterranean Countries

Abstract

The aim of this chapter is, first, to assess the impact of changes in tourism spending on economic activity in 16 Mediterranean countries and, second, to examine whether country-specific characteristics affect the size of tourism spending multipliers. Based on aggregate SVAR model estimates, the authors confirmed a statistically significant response of output to the shock in tourism spending in 88% of the analyzed cases at least over the part of the forecast horizon. In 56% of the examined cases, the value of the respective multiplier is above two. The existence of the multiplier mechanism is documented in 13 economies for domestic and foreign tourism spending within a particular forecast horizon. Tourism spending generates stronger GDP growth in countries that record a higher standard of living, have a better state of road and railroad transport infrastructure, and, to some extent, display higher consumer price levels of hotels and restaurants.