Does exchange rate always affect the number of inbound tourists significantly in China?

Abstract

This investigation examines the time-varying causality between the exchange rate and the number of the inbound tourism of China using the rolling window estimation. The full-sample causality test suggests no causality between the exchange rate and the number of inbound tourists. However, the parameter stability test revels that this causality is unstable, which suggests that fullsample causality tests cannot be relied upon. Then, we use a time-varying rolling window approach to revisit the dynamic causality, and the results show that the exchange rate has an increasing impact on the number of inbound tourism since 2009, which is consist with the continuous market process of the Renminbi exchange rate. Our result proves that inbound tourists will be more concern about the exchange rate with the expansion of the currency’s trading band. The rolling window test reveals that inbound tourism factors should be taken into consideration by China’s government with the development of the tourism industry and the marketization of the exchange rate.

Keywords

• exchange rate
• inbound tourism
• rolling window
• time-varying