The euro effect: Tourism creation, tourism diversion and tourism potential within the European Union

Abstract

This paper investigates the impact of the Economic and Monetary Union on international tourism flows across a set of 37 developed countries. To do this, an augmented gravity model is estimated using a sample of 31 European countries plus six non-European OECD countries over the period 1995–2012. Results suggest a substantial impact of the euro on intra-Eurozone tourism of between 44 and 126% when proper estimation method, control group and definition of the Eurozone are used. Moreover, evidence of tourism creation is also found. Finally, the potential tourism gains for new members and possible entrants of adopting the euro are explored. This study provides a detailed analysis on the effect of the euro on tourism flows which might be of interest for policymakers of the Eurozone or future member states.

Evaluating the effect of the introduction of the euro on tourist flows: A synthetic control approach

“…This result is in line with the findings of Santana‐Gallego et al. (). The authors, by dropping Finland from the sample, found an increase in the estimated impact of the euro on tourism flows, meaning that the effect of the euro in this country is lower than for the rest of the EMU countries.…”

“…Previous contributions (see Gil‐Pareja et al., ; Santana‐Gallego et al., ) have generally found positive and quite widespread effects for the introduction of the euro on intra‐EMU tourism flows. At the same time, such effects have been estimated as heterogeneous and decreasing over time (even negative).…”

“…More recently, Santana‐Gallego et al. () analysed the tourism flows of 37 developed countries over the period 1995–2012. The impact of the euro on intra‐EMU flows was estimated at 146% for the 11 countries that originally joined the EMU and 112.5% for the six countries that joined subsequently.…”

“…To this purpose, they estimated the impacts by using gravity models (Frankel, ; Micco et al., ; Rose, ) and controlled for changes in variables, such as gross domestic product (GDP) per capita, relative prices and other relevant determinants of bilateral flows. When country or year‐specific effects of the euro were estimated through gravity equations, it emerged that the direct effect on intra‐European Monetary Union (EMU) flows has been generally positive; in some cases and periods, it was negative or insignificant (Camarero et al., ; Herwartz & Weber, ; Santana‐Gallego, Ledesma‐Rodrìguez, & Pérez‐Rodrìguez, ). The presence of heterogeneous effects between countries has raised issues related to the conclusiveness of the findings, as a negative sign of the partial/direct effect is difficult to justify.…”

“…The average household may be uncomfortable making repeated calculations while on vacation. Arguments based on rationality and cognitive limits would suggest that the introduction of the euro should have a positive influence on intra‐EMU tourist flows in both absolute and relative terms (i.e., tourism creation and tourism diversion) (see Santana‐Gallego et al., ). Ceteris paribus, a decrease of uncertainty as well as transaction costs, should increase demand for intra‐EMU travel more than the demand for other kinds of goods, services and travel to extra‐EMU destinations.…”