Has tourism influenced Indonesia’s current account?

In this paper we study the role of tourism in explaining Indonesia’s current account balance. We extend the conventional model of current account determinants by augmenting it with tourism (visitor arrivals) and expected and unexpected tourism shocks, where tourism shocks are akin to income shocks. We show that expected and unexpected positive tourism shocks improve Indonesia’s current account balance, particularly in the most recent period (2010Q1–2017Q4). Equally importantly, our empirical investigation shows that the current account reacts asymmetrically to positive tourism shocks. In other words, expected tourism shocks worsen the current account when it is already in deficit and improve it when it is in surplus. Finally, we show that an unexpected tourism shock improves the account balance, regardless of whether the account is in deficit or surplus.