Tourism demand and economic growth in Spain: New insights based on the yield curve.

Abstract

We examine for the first time the dynamic relationship between tourism growth and expected macroeconomic conditions of the destination country, employing a DCCGARCH model. Our focus is on the Spanish economy and we collect monthly tourist arrival data from five key origin countries, as well as, from around the world between 1998-2017. We capture expected macroeconomic conditions using the Spanish term structure of interest rates. Our findings suggest that the tourism-expected macroeconomic conditions relationship is time-varying without any country-specific differences in the behaviour of the correlations. Importantly, we report that positive correlations coincide with a regime shift in the Spanish economy; whereas negative correlations are evident when expected economic conditions are stable. We further show that the aforementioned relationship is influenced by key geopolitical and economic events (the 2001 terrorist attacks, the Global Financial Crisis and the ECB’s quantitative easing programme). We finally report policy implications deriving from our findings.