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The Travel Shock

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  • Milesi-Ferretti, Gian Maria

Abstract

The COVID-19 pandemic has led to a collapse in international travel and tourism. This paper explores how the cross-country impact of the pandemic relates to countries’ dependence on these activities as a source of revenue. It first documents the size of the shock to net revenues from international travel and tourism for the balance of payments. For the median highly tourism-dependent economy the shock exceeded 10 percentage points of GDP, leading to a sizable current account deterioration. Indeed, empirical evidence suggests that current account adjustment in 2020 relative to pre-crisis forecasts was driven to an important extent by the collapse in revenues and expenditures on international travel as well as by the collapse in oil prices. On the economic growth front, the paper shows that the share of tourism activities in GDP is the single most important predictor of the growth shortfall in 2020 triggered by the COVID-19 crisis across the world as well as within the eurozone, even when compared to a variety of measures of the severity of the pandemic.

Suggested Citation

  • Milesi-Ferretti, Gian Maria, 2021. "The Travel Shock," CEPR Discussion Papers 16738, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16738
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    References listed on IDEAS

    as
    1. Philip R Lane & Gian Maria Milesi-Ferretti, 2011. "The Cross-Country Incidence of the Global Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 77-110, April.
    2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2012. "External adjustment and the global crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 252-265.
    3. Muggenthaler, Philip & Schroth, Joachim & Sun, Yiqiao, 2021. "The heterogeneous economic impact of the pandemic across euro area countries," Economic Bulletin Boxes, European Central Bank, vol. 5.
    4. Sarah Osborne, 2022. "U.S. Travel and Tourism Satellite Account for 1999–2022," Survey of Current Business, Bureau of Economic Analysis, February.
    5. Sarah Osborne, 2022. "U.S. Travel and Tourism Satellite Account for 1999�2022," Survey of Current Business, Bureau of Economic Analysis, vol. 102(2), pages 1-4, February.
    6. André Sapir, 2020. "Why has COVID-19 hit different European Union economies so differently?," Bruegel Policy Contributions 38303, Bruegel.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Balance of payments; Covid-19; Economic crisis; Growth; Pandemic; Tourism; Transportation;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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