6533b7d4fe1ef96bd1263174

RESEARCH PRODUCT

The Effect of EMU on Tourism

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Abstract This paper estimates the effect of the euro on intra-EMU tourist flows by using a panel dataset of 20 OECD countries over the period 1995–2002. The results reveal that the euro has increased tourism, with an effect of around 6.5%. This is a noticeable impact given the early stage of the EMU analyzed. The robustness checks show that the evidence of a positive impact is quite widespread across EMU destinationcountries. 1. Introduction The aim of this paper is to analyze the impact of the euro on tourism among the 12members of the Economic and Monetary Union (EMU) in Europe. One of theexpected effects of the creation of the single European currency was the increase in trade of goods and services, due not only to the elimination of exchange rate vola-tility and transaction costs, but also because a common currency enhances the transparency of markets (Emerson et al.,1992).Since the beginning of the EMU,therehas been widespread interest regarding the magnitude of the foreseeable increase intrade. The first paper about the impact of currency unions on trade was Rose (2000),who found for a sample of 186 countries that, other things being equal, bilateral tradewas three times higher for a pair of countries with the same currency than for coun-tries with two different currencies. In the case of the EMU area, the effect of the euroon trade has been analyzed in several papers (Bun and Klaassen,2002;Barr et al.,2003;De Nardis and Vicarelli, 2003; Gil et al., 2003; Micco et al., 2003; Faruqee, 2004) andthey have found a positive effect that ranges between 2.6% and 27.0% depending onthe sample of countries,the periods analyzed,and the methodology used.But,all thesestudies are focused on merchandise trade.Historically it was thought that the only benefit from a monetary union would accrueto tourism (Subercaseaux, 1915, quoted by Lopez-Cordova and Meissner, 2003).Nevertheless, to our knowledge, there is no paper on the impact of a single currencyon tourism. In fact, despite tourism being one of the most important domestic andinternational industries it has failed to attract the attention of mainstream economists.