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Has tourism influenced Indonesia’s current account?

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  • Narayan, Seema
  • Narayan, Paresh Kumar
  • Tobing, Lutzardo

Abstract

In this paper we study the role of tourism in explaining Indonesia’s current account balance. We extend the conventional model of current account determinants by augmenting it with tourism (visitor arrivals) and expected and unexpected tourism shocks, where tourism shocks are akin to income shocks. We show that expected and unexpected positive tourism shocks improve Indonesia’s current account balance, particularly in the most recent period (2010Q1–2017Q4). Equally importantly, our empirical investigation shows that the current account reacts asymmetrically to positive tourism shocks. In other words, expected tourism shocks worsen the current account when it is already in deficit and improve it when it is in surplus. Finally, we show that an unexpected tourism shock improves the account balance, regardless of whether the account is in deficit or surplus.

Suggested Citation

  • Narayan, Seema & Narayan, Paresh Kumar & Tobing, Lutzardo, 2021. "Has tourism influenced Indonesia’s current account?," Economic Analysis and Policy, Elsevier, vol. 69(C), pages 225-237.
    • Handle: RePEc:eee:ecanpo:v:69:y:2021:i:c:p:225-237
    DOI: 10.1016/j.eap.2020.12.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Current account; Visitor arrivals; Shocks; Indonesia;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • Z3 - Other Special Topics - - Tourism Economics

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