Assessing the Tourism-Led Inflation Hypothesis

Abstract

The tourism-led economic growth hypothesis is one of the most investigated concepts in tourism economics literature. It has been verified by many empirical studies so far. Since the concept of growth-driven inflation belongs to the fundamentals of macroeconomic theory, one could reasonably assume inflation can also be led by tourism development. The question, however, is through what mechanisms could it be adequately identified and assessed. If anywhere, tourism-led inflation could first and foremost be perceived in a country with a significant economic impact of tourism. We take one of such countries as a case study and use the structural vector autoregression methodology to examine tourism-led inflation. The presented empirical framework may also serve as a role model applicable to other countries and regions.