The Impact of Wage Rate Growth on Tourism Competitiveness in Transitional Countries

Abstract:     
This study tests whether national labor costs affect international competitiveness in the tourism industry. Labor costs are often cited as a measure of manufacturing competitiveness, but no extensions have been made to examine whether national wage growth affects tourism expenditures. Using a fixed effect model design and two-stage least squares estimation, the study controls for potential endogeneity by implementing education as an instrument for gross wages. The study revealed that labor costs may be an important supply side determinant of tourism expenditures, and supported the theory of a negative relationship between these two variables. The reported findings have government macroeconomic policy implications and industrial implications. Potential extensions of these findings to the tourism area life cycle model are discussed.

Keywords: tourism, wages, labor costs, instrumental variable, income

JEL Classification: L83, J30

working papers series