The impact of tourism demand on regional inflation in Turkey

Abstract

The main purpose of this study is to examine the effects of total tourism demand as well as the effects of both foreign and domestic tourism demand (measured by overnight stays) on regional inflation in Turkey based on the Nomenclature of Territorial Units for Statistics regions classified by Turkish Statistical Institute. To obtain the region-specific effects of tourism demand on inflation, we used the Random Coefficient Regression developed by Swamy by using the annual panel data over the period between 2004 and 2013. Before estimating Swamy Random Coefficients Regressions, we first tested the existence of cross-sectional dependence among the regions of Turkey. And then, based on the results of these tests, we examined the stationarity properties of variables by using second-generation panel unit root tests. The results of the study indicate that there are significant differences in regional effects of different forms of overnight stays on regional inflation. Also, the results show that the contribution of domestic overnight stays to overall and regional inflation is greater than that of foreign overnight stays. Thus, the findings of the study have significant importance in Turkey for designing tourism, industrialization, and monetary policies, particularly aiming to reduce the inflation by adopting inflation targeting regime.