A SVECM Analysis of the Relationship between International Tourism Arrivals, GDP and Trade in Italy

Abstract

This article provides an SVECM investigation of long-run, short-run and contemporaneous relationships across per capita international tourism arrivals ( ar), real GDP ( y), and total international commercial transactions ( tr) for the Italian economy. We find that variables span a bidimensional cointegrating space, which we normalize as long-run relationships between y and ar and between ar and tr. Signs and magnitudes of the estimated elasticities are as expected and compare well with the literature. The causation mechanism shows that none of the variables are weakly exogenous. What we find is that, whereas there appears to be unidirectional long-run causality running from y to tr and from tr to ar, bidirectional causality is detected between y and ar. Structural estimation and a study of the Impulse-Response functions of “meaningful” shocks hitting the economy are used to provide valuable insights for policy and business strategy design.