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The determinants of foreign tourism demand: separating elasticities for the extensive and the intensive margin

Author

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  • Emanuele Breda

    (Bank of Italy)

  • Giacomo Oddo

    (Bank of Italy)

Abstract

This paper estimates the elasticities of Italy�s foreign tourism demand to relative prices, nominal and real exchange rates using a dataset for tourism flows to Italy (and its macro-regions) over the period 1997-2015. By separating total tourism expenditure into the number of arrivals and per-capita expenditure, the effect of each explanatory variable can be divided into an extensive and an intensive margin. This disaggregation helps to clarify the reasons behind the mixed evidence found in the literature and offers a richer interpretation of elasticities. We find that the elasticities of tourism expenditure to relative prices and to nominal and real exchange rates are negative and range from -0.5 to -0.7, in line with previous results found in the literature. The effect on expenditure is channelled mainly via the extensive margin (i.e. the number of arrivals). Southern Italy shows higher price elasticities than the rest of the country, signalling a higher exposure to the competitive pressures from other Mediterranean destinations.

Suggested Citation

  • Emanuele Breda & Giacomo Oddo, 2019. "The determinants of foreign tourism demand: separating elasticities for the extensive and the intensive margin," Questioni di Economia e Finanza (Occasional Papers) 482, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_482_19
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    Cited by:

    1. Jaume Rosselló Nadal & María Santana Gallego, 2022. "Gravity models for tourism demand modeling: Empirical review and outlook," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1358-1409, December.

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    More about this item

    Keywords

    international tourism; demand elasticity;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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