Asymmetric impacts of the World Uncertainty Index and exchange rates on tourism using non-linear Autoregressive Distributed Lag models

Abstract

The tourism industry is highly susceptible to global economic fluctuations and uncertainties. Understanding the asymmetric effects of macroeconomic factors on tourism demand is crucial for developing effective policies and strategies in the sector. This study examines the asymmetric impacts of the World Uncertainty Index (WUI) and exchange rates on outbound tourism demand from Thailand to five Association of Southeast Asian Nations (ASEAN) destinations. We employ linear and non-linear Autoregressive Distributed Lag (ARDL) models using quarterly data from 2003Q1 to 2023Q4. The results demonstrate that the asymmetric ARDL model outperforms its linear counterpart, revealing significant non-linear dynamics in tourism demand. We find that Thai outbound tourism responds more strongly to currency depreciations in destination countries than to appreciations. This asymmetry aligns with prospect theory, suggesting that tourists are more sensitive to potential cost savings than equivalent increases. The study also shows that increases in global economic uncertainty, as measured by the WUI, have a more pronounced negative impact on tourism flows than decreases in uncertainty. These findings have important implications for policymakers and tourism stakeholders in ASEAN countries. They highlight the need for tailored strategies to capitalize on favorable exchange rate movements and mitigate the impacts of global economic uncertainty on regional tourism flows.