Oil prices, tourism income and economic growth: A structural VAR approach for European Mediterranean countries.

Abstract

In this study, a Structural VAR model is employed to investigate the relationship among oil price shocks, tourism variables and economic indicators in four European Mediterranean countries. In contrast with the current tourism literature, we distinguish between three oil price shocks, namely, supply-side, aggregate demand and oil specific demand shocks. Overall, our results indicate that oil specific demand shocks contemporaneously affect inflation and the tourism sector equity index, whereas these shocks do not seem to have any lagged effects. By contrast, aggregate demand oil price shocks exercise a lagged effect, either directly or indirectly, to tourism generated income and economic growth. The paper does not provide any evidence that supply-side shocks trigger any responses from the remaining variables. Results are important for tourism agents and policy makers, should they need to create hedging strategies against future oil price movements or plan for economic policy developments.