Origin Region Wealth Effect and Inbound Tourism to Europe

Abstract

Despite the role of wealth in modelling the propensity to consume luxurious goods and services, the literature has so far neglected the role of wealth as inferred from the stock market in modelling tourism inflow. Using 43 European countries over the period 1994-2019, we demonstrate that demand-side wealth effect as inferred from the Morgan Stanley Capital International (MSCI) indexes is an important determinant of inbound tourism. We find that a good financial mood extrapolated from the bullish wealth effect positively influences the inflow of tourists to Europe. The effect of the relationship between external wealth effect and inbound tourism is higher for non-EU member countries and countries in Eastern Europe. Lastly, we find that the wealth effect in the USA was an important factor in predicting inbound tourism during the Global Financial Crisis.