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

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  • Ding Ding
  • Mr. Yannick Timmer

Abstract

We estimate a variety of exchange rate elasticities of international tourism. We show that, in addition to the bilateral exchange rate between the tourism origin and destination countries, the exchange rate vis-à-vis the US dollar is also an important driver of tourism flows and pricing. The effect of US dollar pricing is stronger for tourism destination countries with higher dollar borrowing, indicating a complementarity between dominant currency 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 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 & Mr. Yannick Timmer, 2022. "Exchange Rate Elasticities of International Tourism and the Role of Dominant Currency Pricing," IMF Working Papers 2022/024, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/024
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    Cited by:

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    More about this item

    Keywords

    International tourism; trade of services; exchange rate elasticity; dominant currency pricing; dominant currency financing; ding ding; currency pricing; Country-specific dominant currencies; exchange rate vis-à-vis; Exchange rates; Currencies; Tourism; Exchange rate adjustments; Depreciation; Caribbean; Global;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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