The euro effect: Tourism creation, tourism diversion and tourism potential within the European Union
| Author | Francisco Ledesma-Rodríguez,María Santana-Gallego,Jorge Pérez-Rodríguez |
| DOI | 10.1177/1465116515600533 |
| Published date | 01 March 2016 |
| Date | 01 March 2016 |
| Subject Matter | Articles |
European Union Politics
2016, Vol. 17(1) 46–68
!The Author(s) 2015
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DOI: 10.1177/1465116515600533
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Article
The euro effect: Tourism
creation, tourism diversion
and tourism potential
within the European Union
Marı
´a Santana-Gallego
University of the Balearic Islands, Spain
Francisco Ledesma-Rodrı
´guez
University of La Laguna, Spain
Jorge Pe
´rez-Rodrı
´guez
University of Las Palmas de Gran Canaria, Spain
Abstract
This paper investigates the impact of the Economic and Monetary Union on inter-
national tourism flows across a set of 37 developed countries. To do this, an augmented
gravity model is estimated using a sample of 31 European countries plus six non-
European OECD countries over the period 1995–2012. Results suggest a substantial
impact of the euro on intra-Eurozone tourism of between 44 and 126% when proper
estimation method, control group and definition of the Eurozone are used. Moreover,
evidence of tourism creation is also found. Finally, the potential tourism gains for new
members and possible entrants of adopting the euro are explored. This study provides a
detailed analysis on the effect of the euro on tourism flows which might be of interest
for policymakers of the Eurozone or future member states.
Keywords
Effect of the euro, international tourism, gravity model, tourism potential
Introduction
According to Baldwin (2006), the euro must be the world’s largest economic policy
experiment. In 1999, 11 European nations found themselves using the same
Corresponding author:
Marı
´a Santana-Gallego, Department of Applied Economics, University of the Balearic Islands, Carretera de
Valldemossa km. 7, 5, Palma (Balearic Islands) 07122, Spain.
Email: maria.santana@uib.es
currency. Given the importance that monetary regimes have on economies, switch-
ing to the euro should have had effects all across the board. Since the inception of
the euro, the bulk of the literature has focused on the analysis of its economic
impact. Indeed, empirical research in International Economics views the euro effect
as an area of significant interest, mainly trying to quantify its impact on inter-
national trade, FDI or economic growth. However, only few papers have explored
the impact of sharing a common currency on international tourism. Tourism is
closely linked to the economic activity in general and its development is inevitably
marked by the introduction of the Euro. According to the Eurobarometer elabo-
rated by the European Commission (2011), citizens of the New member States
showed a weak support for the introduction of the euro, although an overwhelming
majority agreed that joining the common currency would be more convenient for
those who travel in other countries that use the euro and that the euro would make
it easier to shop in other countries using the common currency. Therefore, the euro
effect on tourism flows might have important policy implications since it not only
affects tourism flows across European Union (EU) countries but also it might help
to improve the attitude towards the euro. In this respect, a better understanding of
the effect of the euro on tourism flows may add another argument to the debate on
the benefits of joining the Economic and Monetary Union (EMU).
Traditionally, substantial effort has been put into estimating the impact of the
euro on international trade and its role in macroeconomic performance (Frankel,
2010). Some papers have estimated an early effect of the euro on international
trade. For instance, Micco et al. (2003) find an increase in trade which ranges
between 5 and 20%; Faruquee (2004) estimates that the euro has boosted trade
among member states by roughly 10%; Flam and Nordstrom (2006) report an
estimate of 26%; Aristotelous (2006) estimates an overall effect of the euro of
around 6%; Baldwin (2006) obtains a pro-trade effect of 9%; while Bun and
Klaassen (2007) report an increase of 3% for the euro trade effect. Recent
papers update the euro effect considering more years since the common currency
was adopted. Camarero et al. (2013) estimate a euro effect of 18%, while Sadeh
(2014) finds that exports between two participating member states are 92% higher
than they would have been without the euro. These different estimates of the euro
effects depend on the sample size, the countries considered in the analysis, the
estimation techniques and the dependent variable used. Indeed, Sadeh (2014) pro-
vides an interesting review of previous papers on the euro impact on trade high-
lighting their studies’ main empirical problems.
According to the World Tourism Organization (UN-WTO, 1998), the euro
would bring positive impacts or benefits on tourism flows, since it affects the eco-
nomic environment in which firms and consumers move. Adopting the euro
enhances price transparency, since it makes it easier for tourists to compare
prices in the various destinations of the Union, and hence competition is improved.
Moreover, sharing a common currency eliminates exchange rate fluctuations, for
travellers and firms, reducing the costs and time spent on currency exchange,
leading to lower travel-operational costs and mitigating administrative problems
Santana-Gallego et al. 47
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