The Effects of Economic Policy Uncertainty on Outbound Travel Expenditures

Abstract

Tourism has been one of the fastest growing industries and it makes important contributions on economies. Based on this, the literature aims to determine the factors affecting tourism demand behavior. In this paper, we analyze the effect of economic policy uncertainty (EPU) on both total and personal outbound travel expenditures in the panel data of 17 developed and developing countries. This is the first paper to examine the impact of EPU on travel expenditures within a tourism demand framework. By using the fixed-effects and the Least Square Dummy Variable (LSDV) estimation techniques, we find that an increase in the level of uncertainty decreases travel expenditures. Our findings imply that when people experience an increase in uncertaintyrelated economic policies, they tend to decrease their expenditures abroad. On average, a one standard deviation rise in EPU leads to a 3% and a 6% decrease in the total and personal travel expenditures. We also find that the effect of EPU on travel expenditures is higher in developing economies compared to developed countries. The empirical results in this paper suggest that governments should realize the suppressing effect of uncertainties about their economic policies on tourism demand.

Socio-cultural, Economic, and Environmental Effects of Tourism from the Point of View of the Local Community

“…The rapid and strong growth of mass tourism since the 1950s has made the tourism sector one of the most important sectors in the world (Almeida-García, 2018; Gozgor & Demir, 2018). This ongoing global growth results in countries or regions formulating strategic plans, long-term planning, or development trends to maximize their contribution to tourism development (Nematpour & Faraji, 2019).…”

Do pandemics have an asymmetric effect on tourism in Italy?

“…Using a tourism demand model Demir and Gözgör ( 2018 ) explores how the EPU index negatively affects outbound tourism for a panel set of fifteen countries Ongan and Gozgor ( 2018 ) based on quarterly data from 1996Q1 to 2015Q1 examines the impact of EPU on inbound tourist flows from Japan to the United States. The cointegrating results demonstrate that 1% dispersion in EPU leads to declining Japanese tourist arrivals in the USA by 4.7% in the long-run Gozgor and Demir ( 2018 ) explores the impact of EPU on outbound travel expenditure for seventeen countries belonging to the developing and the developed region, the study concludes that the impact of EPU on outbound tourism is stronger for the developing regions. Işik et al ( 2019b ) based on monthly observations over January 1996 to September 2017, for tourist arrivals in the USA from Mexico and Canada, finds that tourists from Canada are more prone to cutting down of travel plans in the event of uncertainty compared to the Mexican travelers.…”

Trends in tourism under economic uncertainty

“…Fareed et al (2018) explain the asymmetric impact of terrorism on tourism and find a negative relationship between EPU and tourism. Demir and Gozgor (2018) show that rising EPU leads to a decline in tourism as safety and social instability decrease household consumption, which results in the delay or cancelation of tours. Tangvitoontham and Sattayanuwat (2018) indicate that EPU has an immediate negative impact on tourism in the long run.…”

“…The aggregate effect is reflected in gross domestic product (GDP), which is sensitive to economic and political uncertainty and thus influences decision-making by reducing tourism (Chen et al, 2018;Ghosh, 2019;Li et al, 2010;Shahbaz et al, 2018). This can create a fear factor that ultimately leads to the delay or abandonment of access plans (Demir and Gozgor, 2018;Gozgor and Ongan, 2017;Oxford Economics, 2012). The smooth development of tourism depends to a large extent on economic and political stability and vice versa.…”