International Tourism, Foreign Monetary Policy, and Macroeconomic Growth: Evidence from Panel Data Analyses

This study proposes a new research question that monetary policy changes by important central banks which are actors of the global financial system impact international tourist flows across continents through major macroeconomic mechanisms. As a first study, quarterly data is used to test the validity of this research question by considering the effects of the Federal Reserve (FED)’s monetary policy changes on the regional aggregate tourist flows around the World. Results of the first study confirm the long-term significant effects of the FED’s monetary policy actions on international tourist flows across continents. However, these effects are mixed in the directions (signs as positive or negative). This study proposes that the FED’s monetary policy changes indirectly impact tourist flows through changing exchange rates and therefore international prices, foreign direct investments in tourism sectors, and the mediation of financial system like domestic credits by the banking sector. Therefore, a second study is conducted to investigate the causal relations between tourism markets, FDIs, domestic credits, and real income growth in the case of the Mediterranean countries. Results reveal that long-term links and causal relations exist among the above-said variables. Furthermore, the tourism-led growth hypothesis is confirmed for the Mediterranean countries. Importantly, this study also finds that tourism is a significant driver for FDI and financial markets in these countries as well. These major results of this study provide important policy lessons for policymakers.