A new perspective on the linkages between tourism demand and business cycles

Abstract

Business cycles, that is, the irregular fluctuations in economic activity,affect tourism demand—this is a stylized fact in tourism research. And itis well-founded. After all, as incomes rise, so does the consumption ofgoods and services, including tourism; tourism falls into the category ofnormal (or luxury) goods and services. This reasoning, however, mayoffer no assurance totourism-exportingcountries. International tourists,who have many destinations to choose from, may prefer one overanother. Thus, the benefits accruing from rising tourism demand abroadwould differ across tourism-exporting countries: each would be con-cerned with the impact of foreign business cycles onits owntourismexports. Therefore, several important questions arise for a tourism-exporting country: Are foreign business cycles correlated with demandfor its tourism services? If yes, how strong are the correlations? What isthe lag with which tourism demand is affected by business cycles? Doesseasonality, which typifies tourism demand, mask the associationbetween business cycles and tourism demand cycles? This study isdevoted to answering these questions in the context of the demand forNew Zealand (NZ) tourism by employing the recently developed Hamil-ton (2018) filter as well as the frequently used Hodrick-Prescott filter(Hodrick & Prescott, 1997). While the latter is foundational to numer-ous analyses in economics and tourism research, the former is relativelynew. We also use a difference filter to perform robustness checks. Thus,from a methodological standpoint, we contribute to the literature bypresenting the first detailed comparative analysis of business cycles andtourism demand linkages using three different data filters.