The Determinants of Foreign Tourism Demand: Separating Elasticities for the Extensive and the Intensive Margin

Bank of Italy Occasional Paper No. 482, February 2019

28 Pages Posted: 16 Apr 2019

Date Written: January 25, 2019

Abstract

This paper estimates the elasticities of Italy’s foreign tourism demand to relative prices, nominal and real exchange rates using a dataset for tourism flows to Italy (and its macroregions) over the period 1997-2015. By separating total tourism expenditure into the number of arrivals and per-capita expenditure, the effect of each explanatory variable can be divided into an extensive and an intensive margin. This disaggregation helps to clarify the reasons behind the mixed evidence found in the literature and offers a richer interpretation of elasticities. We find that the elasticities of tourism expenditure to relative prices and to nominal and real exchange rates are negative and range from -0.5 to -0.7, in line with previous results found in the literature. The effect on expenditure is channelled mainly via the extensive margin (i.e. the number of arrivals). Southern Italy shows higher price elasticities than the rest of the country, signalling a higher exposure to the competitive pressures from other Mediterranean destinations.

Keywords: international tourism, demand elasticity

JEL Classification: F14, L83

Suggested Citation

Breda, Emanuele and Oddo, Giacomo, The Determinants of Foreign Tourism Demand: Separating Elasticities for the Extensive and the Intensive Margin (January 25, 2019). Bank of Italy Occasional Paper No. 482, February 2019, Available at SSRN: https://ssrn.com/abstract=3355416 or http://dx.doi.org/10.2139/ssrn.3355416

Emanuele Breda (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giacomo Oddo

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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