Do Tourist Arrivals Contribute to the Stable Exchange Rate? Evidence from Indonesia
Abstract
The impact of exchange rate on tourism arrivals fluctuation has been well accepted in the frame work of demand function. However, literature on the influence of tourism arrivals on exchange rate stabilization revealed inconclusive.
This paper attempts to analyze the economic importance of international tourism arrivals in Indonesia based on the question of whether tourism arrivals contribute to stabilize exchange rate. Estimation of monthly time series data for the period of 2004-13 presents that Hedrick-Prescott filtered cyclical components of tourism arrivals and exchange rate are co-integrated and bi-directional Granger-causality. The results of VAR present that cyclical characteristics of tourism arrivals are pro-cyclical to exchange rate implying that the increase in tourism arrivals induce the destination currency appreciation. These results indicate that tourism arrivals are sustainable inflow and have a big potency to absorb other external funding resources volatility in order to maintain adequate international reserve and therefore contribute to achieve the stable exchange rate. In such a case, improving the competitiveness of tourism sector should be an integral part of the exchange rate stabilization program.
References
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[27] Nowjee, A., Poloodoo, V., Lamport, M., Padachi, K. and Ramdhony, D. (2012). The Relationship between Exchange Rate, Tourism, and Economic Growth: Evidence from Mauritius, paper presented in the International Conference on International Trade and Investment, 24-26 October 2012, Mauritius.
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[29] Oh, C.K. (2005). The Contribution of Tourism Development to Economic Growth in the Korean Economy, Tourism Management, 26: 39–44. DOI: 10.1016/j.tourman.2003.09.014
[30] Ongon, S. and Demiroz, D.M. (2005), The Contribution of Tourism to the Long-run Turkish Economic Growth, Ekonomicky Casopis, 53(9): 880–94.
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[32] Pallage, S. and Robe, M.A. (2001). Foreign Aid and the Business Cycle, Review of International Economics, 9(4): 641-72. DOI: 10.1111/1467-9396.00305
[33] Poloodoo, V. (2010). Exchange Rate Volatility and Export Competitiveness: Empirical Evidence from Mauritius, Economic Analysis Research Papers, WP16/12. DOI: 10.2139/ssrn.1618982
[34] Rosello, J., Aguilo, E. and Riera, A. (2005). Modeling Tourism Demand Dynamics, Journal of Travel Research, 44: 111-16. DOI: 10.1177/0047287505276602
[35] Salman, A.K. (2003). Estimating Tourism Demand through Cointegration Analysis: Swedish Data, Current Issues in Tourism: 323-39. DOI: 10.1080/13683500308667959
[36] Sayan, S. (2006). Business Cycles and Workers’ Remittances: How Do Migrants Workers Respond to Cyclical Movements of GDP at Home?, IMF Working Paper, No. 06/52.
[37] Smeral, E. (2004). Long-term Forecasts for International Tourism, Tourism Economics, 10: 145-66. DOI: http://dx.doi.org/10.5367/000000004323142461
[38] Song, H. and Li, G. (2008), Tourism Demand Modeling and Forecasting-A Review of Recent Research. Tourism Management, 29: 203-20. DOI: 10.1016/j.tourman.2007.07.016
[39] Tan, A.Y.F., McCahon, C. and Miller, J. (2002). Modeling Tourist Flows to Indonesia and Malaysia, Journal of Travel and Tourism Marketing, 13: 61-82. DOI: 10.1300/J073v13n01_05
[40] Tang, C.F. (2011). Tourism, Real Output, and Real Effective Exchange Rate in Malaysia: a View from Rolling Sub-samples, MPRA Paper No. 29379, February.
[41] Toh, R.S., Habibullah, K. and Goh, L. (2006). Japanese Demand for Tourism in Singapore: A Cointegration Approach, Tourism Analysis, 10: 369-375. DOI: http://dx.doi.org/10.3727/108354206776162831
[42] Webber, A.G. (2001). Exchange Rate Volatility and Cointegration in Tourism Demand, Journal of Travel Research, 39: 398–405. DOI: 10.1177/004728750103900406
[43] Werthner, H. and Klein, S. (1999). ICT and the Changing Landscape of Global Tourism Distribution, Electronic Markets, 9(4): 256–62.
[44] Witt, S.F. and Song, H. (2000). Forecasting Future Tourism Flows, in S. Medlik and A. Lockwood, (eds), Tourism and Hospitality in the 21st Century, Butterworth-Heinemann, Oxford: 106-18.
[45] Witt, S.F., Song, H. and Wanhill, S.P. (2004). Forecasting Tourism-Generated Employment: the Case of Denmark, Tourism Economics, 10: 167-76. DOI: 10.5367/000000004323142407
[46] Wulandari, Y. (2012). Determinants of Foreign Tourist Arrivals in Indonesia, Unpublished Graduate Theses, Gadjah Mada University, Yogyakarta.
*** UNWTO, (2012), UNWTO Tourism Highlights 2012 Edition, UNWTO, Madrid.
*** UNWTO, (2013), UNWTO World Tourism Barometer, 11, December 2013, UNWTO, Madrid.
[2] Alper, E. (2002). Business Cycles, Excess Volatility, and Capital Flows: Evidence from Mexico and Turkey, Emerging Markets Finance and Trade, 38(4): 25-58
[3] Balaguer, L. and Cantavella-Jorda, M. (2002). Tourism as a Long-run Economic Growth Factor: The Spanish Case, Applied Economics, 34: 877-84. DOI: 10.1080/00036840110058923
[4] Belloumi, M. (2010). The Relationship between Tourism Receipts, Real Effective Exchange Rate, and Economic Growth in Tunisia, International Journal of Tourism Research, 12: 550-60. DOI: 10.1002/jtr.774
[5] Chang, C. and McAleer, M. (2012). Aggregation, Heterogeneous Autoregression, and Volatility of Daily International Tourist Arrivals and Exchange Rates, Japanese Economic Review, 63(3): 397-419. DOI: 10.1111/j.1468-5876.2011.00563.x
[6] Cheng, KM., Kim, H. and Thompson, H. (2013). The Real Exchange Rate and the Balance of Trade in US Tourism, International Review of Economics and Finance, 25: 122–28. DOI: http://dx.doi.org/10.1016/j.iref.2012.06.007
[7] Cornelissen, S. (2005).The Global Tourism System Governance, Development and Lessons from South Africa, New Directions in Tourism Analysis, Aldershot: Ashgate.
[8] Cortes-Jimenez, I. and Pulina, M. (2006). Tourism and Growth: Evidence for Spain and Italy, paper presented in the 46th Congress of the European Regional Science Association, University of Thessaly (Volos, Greece), 30 August – 3 September 2006.
[9] Crouch, G.I. (1993). Currency Exchange Rates and the Demand for International Tourism, Journal of Tourism Studies, 4(2): 45-53.
[10] Dristakis, N. (2004). Tourism as a Long-run Economic Growth Factor: an Empirical Investigation for Greece Using Causality Analysis, Tourism Economics 10(3): 305–16. DOI: 10.5367/0000000041895094
[11] Eeckels, B., Filis, G. and Leon, C. (2006). Cyclical Movements of Tourism Income and GDP and their Transmission Mechanism: Evidence from Greece, paper presented in the 24th EuroCHRIE Congress, Thessaloniki, Greece, 26-28 October.
[12] Enders, W. (2004). Applied Econometric Time Series, Second edition, New York: John Wiley & Son.
[13] Geyikdagi, Y.G. and Geyikdagi, N.V. (1997). Tourism as a Stabilizer of Foreign Currency Receipts: An Application to the Mediterranean Countries, Economia Internazionale, 50(4): 511-17.
[14] Ghartey, E.E. (2010). Tourism, Economic Growth, and Monetary Policy in Jamaica, paper presented in the 11th Annual SALISES 2010 Conference in Port of Spain, Trinidad-Tobago, 24-26 March.
[15] Gouveia, P. and Rodrigues, P. (2005). Dating and Synchronizing Tourism Growth Cycles. Tourism Economics, 11(4): 501-15. DOI: 10.5367/000000005775108746
[16] Gunduz, L. and Hatemi, J.A. (2005). Is the Tourism-Led Growth Hypothesis Valid for Turkey?, Applied Economics Letters, 12: 499–504. DOI: 10.1080/13504850500109865
[17] Hodrick, R.J. and Prescott, E.C. (1997). Post-war U.S. Business Cycles: An Empirical Investigation, Journal of Money, Credit and Banking, 29: 1-16.
[18] Kumar, R.R., V. Naidu, and Kumar, R. (2011). Exploring the Nexus between Trade, Visitor Arrivals, Remittances, and Income in the Pacific: a Study of Vanuatu, Oeconomica, 7(4): 199-218.
[19] Kuncoro, H. (1997). Reorientation of Indonesian Economic Development Strategy toward Globalization Era, Buletin Ekonomi, 1(2): 28-34.
[20] Kuncoro, H. (2011b). Fiscal Sustainability, Public Debt, and Economic Growth: the Case of Indonesia, Journal of Applied Research in Finance, 3(1): 50-61.
[21] Kydland, F.E. and E. Prescott, (1990), Business Cycles, Real Facts, and a Monetary Myth, Federal Reserve Bank of Minneapolis Quarterly Review, 14(2): 3-18.
[22] Lim, C. (2004). The Major Determinants of Korean Outbound Travel to Australia, Mathematics and Computers in Simulation, 64: 477-85. DOI: 10.1016/S0378-4754(03)00113-7
[23] Lorde, T., Lowe, S. and Francis, B. (2010). Do Tourism Receipts Contribute to the Sustainability of Current Account Deficits: a Case Study of Barbados, Central Bank of Barbados working paper.
[24] Lucas, R.E. (1977). Understanding Business Cycles, in K. Brunner and A.H. Meltzer, (eds.), Stabilization of the Domestic and International Economy, Amsterdam: North Holland.
[25] Malik, S., Chaudhry, I.S., Sheikh, M.T. and Farooqi, F.S. (2010). Tourism, Economic Growth, and Current Account Deficit in Pakistan: Evidence from Co-integration and Causal Analysis, European Journal of Economics, Finance, and Administrative Sciences, 22: 21-31.
[26] Neupane, H.S., Shrestha, C.L. and Upadhyaya, T.P. (2012). Modeling Monthly International Tourist Arrivals and Its Risk in Nepal, NRB Economic Review, 4(1): 28-47.
[27] Nowjee, A., Poloodoo, V., Lamport, M., Padachi, K. and Ramdhony, D. (2012). The Relationship between Exchange Rate, Tourism, and Economic Growth: Evidence from Mauritius, paper presented in the International Conference on International Trade and Investment, 24-26 October 2012, Mauritius.
[28] Obstfeld, M. and Rogoff, K. (1996). Foundations of International Macroeconomics, Cambridge, MA: MIT Press.
[29] Oh, C.K. (2005). The Contribution of Tourism Development to Economic Growth in the Korean Economy, Tourism Management, 26: 39–44. DOI: 10.1016/j.tourman.2003.09.014
[30] Ongon, S. and Demiroz, D.M. (2005), The Contribution of Tourism to the Long-run Turkish Economic Growth, Ekonomicky Casopis, 53(9): 880–94.
[31] Ouerfell, C. (2008). Co-integration Analysis of Quarterly European Tourism Demand in Tunisia, Tourism Management, 29(1): 127-37. DOI: 10.1016/j.tourman.2007.03.022
[32] Pallage, S. and Robe, M.A. (2001). Foreign Aid and the Business Cycle, Review of International Economics, 9(4): 641-72. DOI: 10.1111/1467-9396.00305
[33] Poloodoo, V. (2010). Exchange Rate Volatility and Export Competitiveness: Empirical Evidence from Mauritius, Economic Analysis Research Papers, WP16/12. DOI: 10.2139/ssrn.1618982
[34] Rosello, J., Aguilo, E. and Riera, A. (2005). Modeling Tourism Demand Dynamics, Journal of Travel Research, 44: 111-16. DOI: 10.1177/0047287505276602
[35] Salman, A.K. (2003). Estimating Tourism Demand through Cointegration Analysis: Swedish Data, Current Issues in Tourism: 323-39. DOI: 10.1080/13683500308667959
[36] Sayan, S. (2006). Business Cycles and Workers’ Remittances: How Do Migrants Workers Respond to Cyclical Movements of GDP at Home?, IMF Working Paper, No. 06/52.
[37] Smeral, E. (2004). Long-term Forecasts for International Tourism, Tourism Economics, 10: 145-66. DOI: http://dx.doi.org/10.5367/000000004323142461
[38] Song, H. and Li, G. (2008), Tourism Demand Modeling and Forecasting-A Review of Recent Research. Tourism Management, 29: 203-20. DOI: 10.1016/j.tourman.2007.07.016
[39] Tan, A.Y.F., McCahon, C. and Miller, J. (2002). Modeling Tourist Flows to Indonesia and Malaysia, Journal of Travel and Tourism Marketing, 13: 61-82. DOI: 10.1300/J073v13n01_05
[40] Tang, C.F. (2011). Tourism, Real Output, and Real Effective Exchange Rate in Malaysia: a View from Rolling Sub-samples, MPRA Paper No. 29379, February.
[41] Toh, R.S., Habibullah, K. and Goh, L. (2006). Japanese Demand for Tourism in Singapore: A Cointegration Approach, Tourism Analysis, 10: 369-375. DOI: http://dx.doi.org/10.3727/108354206776162831
[42] Webber, A.G. (2001). Exchange Rate Volatility and Cointegration in Tourism Demand, Journal of Travel Research, 39: 398–405. DOI: 10.1177/004728750103900406
[43] Werthner, H. and Klein, S. (1999). ICT and the Changing Landscape of Global Tourism Distribution, Electronic Markets, 9(4): 256–62.
[44] Witt, S.F. and Song, H. (2000). Forecasting Future Tourism Flows, in S. Medlik and A. Lockwood, (eds), Tourism and Hospitality in the 21st Century, Butterworth-Heinemann, Oxford: 106-18.
[45] Witt, S.F., Song, H. and Wanhill, S.P. (2004). Forecasting Tourism-Generated Employment: the Case of Denmark, Tourism Economics, 10: 167-76. DOI: 10.5367/000000004323142407
[46] Wulandari, Y. (2012). Determinants of Foreign Tourist Arrivals in Indonesia, Unpublished Graduate Theses, Gadjah Mada University, Yogyakarta.
*** UNWTO, (2012), UNWTO Tourism Highlights 2012 Edition, UNWTO, Madrid.
*** UNWTO, (2013), UNWTO World Tourism Barometer, 11, December 2013, UNWTO, Madrid.
Published
2016-10-26
How to Cite
KUNCORO, Haryo.
Do Tourist Arrivals Contribute to the Stable Exchange Rate? Evidence from Indonesia.
Journal of Environmental Management and Tourism, [S.l.], v. 7, n. 1, p. 63-79, oct. 2016.
ISSN 2068-7729.
Available at: <https://journals.aserspublishing.eu/jemt/article/view/306>. Date accessed: 23 nov. 2024.
Section
Article
Keywords
tourism; exchange rate; cyclicality; VAR; impulse response
Copyright© 2024 The Author(s). Published by ASERS Publishing 2024. This is an open access article distributed under the terms of CC-BY 4.0 license.