The (Un)sticky role of exchange and inflation rate in tourism development: insight from the low and high political risk destinations

ABSTRACT

Although the tourism industry has continued to exert a significant impact on economies of most destinations, the impacts of political (in) security, socioeconomic and financial dynamics in the destination countries are equally playing decisive roles. Mirroring from this perspective, this study examined the role of political risk, exchange rate and inflation rate on the inbound international tourists in the panel of 76 destinations over the period 1995–2017. By employing the Pooled OLS (Ordinary Least Square) and the Generalized Moment of Methods (GMM), the estimation results suggest that the political risk is a significant impediment to the growth of total tourism arrivals in the panel countries. In addition, high exchange and inflation rates, respectively, impact international tourism arrivals (ITAs) in a positive and negative pattern. Moreover, the findings show that the impact of political risk on ITAs is significant, and has a positive and negative effect in the low- and high-risk destinations, respectively. While the study urges for a formidable drive towards sustainable conflict resolution in destination countries, it further presents recommendations for preventing potential spillover effects in the event of the political, economic or financial crisis.

KEYWORDS:

• Political risk
• exchange rate
• inflation rate
• low-risk destinations
• high-risk destinations

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://www.prsgroup.com/wp-content/uploads/2012/11/icrgmethodology.pdf

2 Several studies also show that political risk is matter and impact profitability of financial companies (e.g., Athari, 2020).

3 Further information on the measurement and properties of Political Index can be found from www.prsgroup.com