the activity of world tourism is directly related to the strength of the US dollar

According to a study by economists from the US Federal Reserve System (FRS), the growing global demand for tourism, including international tourism, makes the volume of tourist flows in the world dependent on the dollar exchange rate, regardless of where and from which country tourists travel. A 1% strengthening of the dollar against major currencies correlates with a 0.12% decline in global tourist flows, and the floating exchange rate regime in countries dependent on tourist flows dampens this effect relatively poorly.

Released last week by the Fed’s Supervisory Board, a discussion article by Yannick Timmer of the Fed’s Board of Governors and Tinker Dinh, an IMF economist, describes the dependence of the world’s tourist flows on the dynamics of exchange rates. The question of what determines the volume of tourist flows in the world has been of interest to a growing number of economists since the early 2000s, not by chance. The share of the leisure and hospitality industry in the average world GDP is no more than 5%, but in a number of countries the volume of income from it exceeds 25%, and, as a rule, these countries (often poor ones) build their macro strategies on the accelerated development of this sector and on competition with others. tourist regions. At the same time, the system of flexible exchange rates, which is now common in almost all jurisdictions, makes the idea of ​​damping the attractiveness or unattractiveness of the territory for tourism by the national currency very attractive. Finally, foreign holidays, especially after the COVID-19 pandemic, are a growing social trend and value in almost all segments of the population of developed and developing countries – the question of how and what tourist flows are managed is becoming macroeconomically significant. For the Russian Federation, the work of Digne and Timmer is applicable, for example, to common calculations of the competitiveness of domestic tourism in relation to the resorts of Turkey (with the Turkish lira greatly weakening against both the dollar and the ruble) and Egypt.

The main result of the authors’ work with data from the UNWTO, TripAdvisor and a number of other sources is the demonstration of the role of the US dollar in world tourism. Digne and Timmer confirm Gita Gopinath of the IMF’s suggestion that the dynamics of world tourism flows are significantly influenced by the dynamics of exchange rates. The authors show that in the case of tourism – both global and domestic in most cases – the work of the traditionally used Mundell-Fleming model for foreign trade is distorted by the effect of “pricing in the dominant currency” (DCP), which for the tourism market in the world is the dollar. Local dominance of the euro or, more rarely, the British pound, the Australian dollar (the yuan and the Japanese yen are not in this list) in certain markets where a high share of inbound tourism is visited by visitors from the EU, the UK and, with reservations, Australia (where the role of the Australian dollar is enhanced by the specifics financial systems of small Pacific countries) does not change the overall picture.

In addition, Digne and Timmer state that the dollar exchange rate against major world currencies is important for tourist flows, in which there are few tourists from the United States, and the high profitability of international tourism compared to domestic tourism makes the US dollar “influential” for domestic tourist flows. Calculations show that the strengthening of the US dollar by 1% on average reduces the flow of tourists in the world by 0.12%. The reason is that about 60% of tourist spending is hotels, where the DCP effect is especially strong: almost everywhere the hotel business conducts pricing in dollars, reflecting fluctuations in the local currency at current prices. Part of the effect is also determined by the DCP effect when investing in new hotel capacities. The dependence of tourist flows on the dollar, Digne and Timmer believe, is significantly higher than the average in world trade. It should be noted that the work may lead to further strengthening of this dependence in the process of involving ever wider sections of the population of developing countries in outbound tourism – and this, apparently, is inevitable.

Dmitry Butrin