The Effect of Real Effective USD/TRY Exchange Rate on Tourism Income: An Empirical Analysis of Turkey

Abstract

The exchange rate is one of the most important factors affecting the travel costs of tourists. Therefore, the depreciation of the national currency makes tourist travel cheaper. Similarly, the appreciation of the national currency makes travel more expensive for tourists. From this point of view, this study aims to seek the effects of real effective USD/TRY exchange rate on tourism income and average tourism expenditure per capita for the period 2003Q1-2019Q4. In the empirical analysis, the Granger causality test was used to examine the relationship between the variables. According to the results of the study, a bilateral Granger causality relationship was determined between the real effective USD/TRY exchange rate and the average tourism expenditure per capita. However, Granger causality could not be determined between the real effective USD/TRY exchange rate and tourism income. Afterwards, variance decomposition and impulse-response functions analyses were performed to support the results obtained from the Granger causality test. According to the results of the variance decomposition analysis, the ratio of the average tourism expenditure per capita in Turkey to be explained by tourism income and real effective exchange rate is quite high.