Interrelationships between Tourist Arrivals, Exchange Rate, Inflation, and Economic Growth: Empirical Evidence for Türkiye

Abstract

Touristic activities have become essential for sustainable development associated with countries' prosperity and mobility opportunities. These activities may be affected by the exchange rate, economic growth, and general price movements, and these variables may also be affected by tourism activities. This study analyzes the relationships between tourist arrivals, economic growth, inflation, and exchange rate for Türkiye taking the country's geopolitical risk as exogenous, using monthly data over 2008-2020 and a Vector Error Correction modelling approach. The results indicate favorable short-run and long-run impacts of tourist arrivals on economic growth and confirm the validity of the tourism-led growth hypothesis for Türkiye. Toda Yamamoto causality tests show unidirectional causality from economic growth to inflation and exchange rate fluctuations and from the exchange rate to inflation. Therefore, results do not show evidence of tourism’s Dutch disease effect. Improving the quality of tourism-related services and marketing is vital for revenue increase and, thus, economic growth.

JEL classification:  Z32, C32, F31

Keywords:  Tourist arrivals, Tourism-led growth, Inflation, Exchange rate, Geopolitical risk