The relationship between tourism and international trade: An empirical research on Turkey

Tourism has a remarkable effect on Turkish economy. GDP, employment and external balance of payments are influenced by tourism activity. Increased tourism activity enhances the growth of the economy. An increase in tourist arrivals and tourism revenues causes a rise in GDP in these three ways. These effects are direct, indirect and induced effects. According to WTTC (2018) tourism industry produces directly 4 per cent of the Turkey's GDP. Total effects which is the sum of direct, indirect and induced effects, consist 11 per cent of Turkey's GDP. Tourism directly changes the net exports of Turkey. Tourism revenues directly contributes to trade balance. Turkish economy has tourism services surplus although trade deficit. Recently, almost 40 per cent of trade deficit is compensated by tourism revenues. Hence need for external finance declines due to the tourism earnings. On the other hand, tourism can have indirect effect on external balance through changing exports and imports. Non-tourism Turkish trade deficit has not auto-stabilizers thus tourism revenues is necessary to decrease trade deficits. Tourism has indirect effects on current account balance. In this study we tested indirect effects of tourist arrivals on trade volume, exports and imports. There are two hypotheses on the relationship between trade and tourism. Firstly, Marco Polo hypothesis states that international travel leads to international trade. Second hypothesis Interest and Awareness hypothesis which emphasis that trade is the cause of tourism. This thesis follows Kulendran and Wilson (2000) and Shan and Wilson (2001) methodology. Toda and Yamamoto (1995) Granger causality test is applied in order to discover direction of causality among bivariate relations. Then cointegration tests are performed for bivariate tourism series. Pesaran and Shin (2001) bounded test is applied to test cointegration relationships among variables. After that ARDL based error correction models are estimated. In the multivariate analysis, income and exchange rate elasticity of tourism and trade variables are estimated. Explanatory variables which are chosen to explain tourist arrivals are real effective exchange rate, real income of foreigners, country specific events. Country events are proxied by qualitative variables. Income elasticity of tourist arrivals is estimated 3.10 and price elasticity is -0.02. However, price elasticity is found insignificant. In the multivariate time series analysis part, regressions are run. Tourism revenues and exports are run on explanatory variables. These explanatory variables are income of origin countries, real effective exchange rate and country specific risks. On the other hand, tourism expenditure and imports are run on Turkey's real income, real effective exchange rate. Multivariate models show that real exchange is responsive in outbound tourism and it is not responsive in inbound tourism. Real exchange rate is also effective in non-tourism imports. Income elasticities trade and tourism variables are found significant. Country specific events significantly reduce the tourism arrivals and tourism revenues. Keywords: Tourism, Tourism Demand, International Trade, Cointegration, ARDL