The impact of exchange rate and exchange rate volatility on tourism demand using disaggregated data

Abstract

AbstractThe present study investigates the impacts of exchange rate and exchange rate volatility on inbound tourism demand in Mauritius, using annual data covering the period 1999–2019 and a panel autoregressive distributed lag model. In particular, we consider 17 major tourism markets for Mauritius. The sample is further divided into Eurozone (7 countries) and non‐Eurozone (10 countries) for additional insights. The results show that in the long run, both the exchange rate and its volatility have negative and significant impacts on tourism demand across the three samples considered, while income in the home country has a positive and significant effect on tourism demand. On the other hand, relative price is found to have a significant and negative effect on tourism demand only for the overall sample of 17 countries, while for both the Eurozone and non‐Eurozone, the impact is insignificant. The empirical results suggest that policymakers should give consideration to stronger monetary and fiscal regulations to increase tourism demand.