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Exchange Rate Elasticities of International Tourism and the Role of Dominant Currency Pricing

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  • Ding Ding
  • Yannick Timmer

Abstract

We estimate exchange rate elasticities of international tourism. We show that, in addition to the bilateral exchange rate, the exchange rate between the tourism origin country vis-à-vis the U.S. dollar is an important driver of tourism flows, indicating a strong role of U.S. dollar pricing. The U.S. dollar exchange rate is more important for tourism destination countries with higher U.S. dollar borrowing, pointing toward a complementarity between U.S. dollar pricing and financing. Country-specific dominant currencies (CSDCs) play only a minor role for the average country but are important for tourism-dependent countries and those with a high concentration of tourists. The importance of the U.S. dollar exchange rate represents a strong piece of evidence of dominant currency pricing (DCP) in the international trade of services and suggests that the benefits of exchange rate flexibility for tourism-dependent countries may be weaker than previously thought.

Suggested Citation

  • Ding Ding & Yannick Timmer, 2022. "Exchange Rate Elasticities of International Tourism and the Role of Dominant Currency Pricing," CESifo Working Paper Series 9743, CESifo.
    • Handle: RePEc:ces:ceswps:_9743
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    2. Neiman, Brent & Swagel, Phillip, 2009. "The impact of post-9/11 visa policies on travel to the United States," Journal of International Economics, Elsevier, vol. 78(1), pages 86-99, June.
    3. Goldberg, Linda S. & Tille, Cédric, 2008. "Vehicle currency use in international trade," Journal of International Economics, Elsevier, vol. 76(2), pages 177-192, December.
    4. Cristea, Anca D., 2011. "Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel," Journal of International Economics, Elsevier, vol. 84(2), pages 207-220, July.
    5. Ms. Nicole Laframboise & Miss Nkunde Mwase & Mr. Joonkyu Park & Yingke Zhou, 2014. "Revisiting Tourism Flows to the Caribbean: What is Driving Arrivals?," IMF Working Papers 2014/229, International Monetary Fund.
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    Cited by:

    1. Yoichi Matsubayashi & Yoshihisa Inada, 2023. "Individual tourist expenditures in Japan during the inbound tourism boom period (2015–2017): Empirical evidence from micro survey data," Asian Economic Journal, East Asian Economic Association, vol. 37(4), pages 492-518, December.

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    Keywords

    exchange rates; trade; tourism; dominant currency pricing;
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