The beach disease? Tourism and exchange rates

Tourism has emerged as a major engine of economic growth, contributing over 10 percent of global GDP and up to 85 percent in some small developing economies. While it generates important development opportunities, international tourism may also have unintended macroeconomic consequences, including potential pressures on real exchange rate valuation. This paper uses a comprehensive panel dataset covering 139 countries over the period 1980–2023 and estimates real exchange rate misalignments using the Behavioral Equilibrium Exchange Rate (BEER) framework. It then examines whether tourism inflows are associated with deviations of the real exchange rate from its estimated equilibrium, in line with a “beach disease” mechanism analogous to the Dutch disease literature. Baseline results indicate a positive association between tourism revenues and real exchange rate overvaluation. This relationship is more pronounced in developing economies, while it is not statistically significant in advanced economies. However, the estimated effects are sensitive to specification and are generally weaker when instrumental variable approaches are employed, suggesting caution in interpreting the results as strictly causal. Overall, the analysis provides suggestive evidence that tourism inflows may be associated with real exchange rate misalignments under certain macroeconomic conditions. These findings highlight potential external-sector pressures in tourism-dependent economies, while also underscoring the importance of flexible macroeconomic frameworks and diversification strategies.