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Anatolia
An International Journal of Tourism and Hospitality Research
ISSN: 1303-2917 (Print) 2156-6909 (Online) Journal homepage: https://www.tandfonline.com/loi/rana20
Effects of the tourism industry on the balance of
payments deficit
Ali Kemal Çelik , Sami Özcan , Abdullah Topcuoğlu & Kürşad Emrah Yildirim
To cite this article: Ali Kemal Çelik , Sami Özcan , Abdullah Topcuoğlu & Kürşad Emrah Yildirim (2013) Effects of the tourism industry on the balance of payments deficit, Anatolia, 24:1, 86-90, DOI: 10.1080/13032917.2013.772529To link to this article: https://doi.org/10.1080/13032917.2013.772529
Published online: 28 Feb 2013.
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RESEARCH NOTE
Effects of the tourism industry on the balance of payments deficit
Ali Kemal C¸ elika*, Sami O¨ zcanb, Abdullah Topcuog˘lucand Ku¨rs¸ad Emrah Yildirimd
a
Department of Business Administration, Atatu¨rk University, Erzurum, Turkey;bDepartment of Business Administration, Ardahan University, Ardahan, Turkey;cDepartment of Economics, Ardahan University, Ardahan, Turkey;dDepartment of Political Science and Public Administration, Ardahan University, Ardahan, Turkey
(Received 14 December 2012; final version received 30 January 2013)
The balance of payments is an accounting record that indicates the economic and financial situations of a country as compared with other countries. International tourism directly affects the balance of payments as an invisible export entry. The significant contribution of international tourism appears on the balance of payments account under the entry of international services. In order to discuss the favourable effect of tourism on the balance of payments, the amount of foreign currency revenues for a country must exceed the amount of foreign currency expenditures. Most developing countries, including Turkey, are exposed to crucial balance of payments and foreign trade deficits. At this point, tourism has a favourable effect in closing the gap in foreign trade and the balance of payments. This paper examines the primary effect of numerical tourism revenues on the balance of payments between 1984 and 2012 in Turkey. The empirical findings suggest that the increase in tourism revenues over this period has resulted in a decrease in the balance of payments deficit of 14%.
Keywords:tourism; tourism revenue; balance of payments; unit root test; stationary test; regression analysis
Introduction
Despite its growing economic importance and enormous potential, the tourism industry was generally ignored in global studies concerning development, growth, and wealth until the 1950s (Bahar, 2006; Crouch & Ritchie, 1999). The tourism industry is one of the fastest developing sectors and is therefore adopted by many industrialized and developing countries as one of the most noteworthy sources of economic growth, development, and minimizing external debt stocks. Tourism revenues make an important impact on economies, resulting in job creation, additional income for the private and public sectors, foreign currency receipts, higher investment, and growth (De Mello, Pack, & Sinclair, 2002).
Thirlwall (1979) identifies the importance of the balance of payments on economic growth and stated that if a country gets into balance of payments difficulties as it expands demand before the short-term capacity growth rate is reached, then demand must be curtailed; supply is never fully utilized; investment is discouraged; technological progress is
q2013 Taylor & Francis
This paper is a revised and extended version of the conference paper accepted as an abstract at the Current Account Imbalances Center for Economics and Econometrics Annual Conference, on 17 – 18 December 2012, Bog˘azic¸i University, I˙stanbul, Turkey.
*Corresponding author. Email: akemal.celik@atauni.edu.tr
slowed down; and a country’s goods as compared with foreign goods become less desirable. In addition, Thirlwall and Hussain (1982) point out that developing countries are often able to build up ever-growing current account deficits, financed by capital inflows that allow them to grow consistently faster than otherwise would be the case. In this sense, the starting point of any studies of the current account is the international capital flows and the balance of payments on the one hand, and saving and investment on the other (Pitchford, 1995).
The balance of payments focuses on the description of the economic relationship between residents and non-residents, and it includes transactions associated with international tourism which have been defined on the basis of the concept of residence that is similar to that used in the balance of payments and the system of national accounts (United Nations Statistical Commission, 2007). Net tourism revenues take place under the services sub-item of the current account, and the significant impact of tourism revenues for developing countries has been well recognized by a large number of studies. International tourism receipts contribute to current flows in the Turkish economy together with remittances from workers abroad and foreign investments (Tosun, Timothy, & O¨ ztu¨rk, 2003). Otherwise, according to the Central Bank of Turkey (2012), net tourism revenues possess the largest share of the services item. A number of studies have emphasized the significant relationship between tourism and the Turkish economy, while others have dealt with econometric and empirical illustrations (Akal, 2010; Kaplan & Celik, 2008; Ozturk & Acaravcı, 2009), or have concentrated on the associations among the current account, balance of payments, and inequality (Ongan, 2008; Tosun et al., 2003; Ulusoy & I˙nancli, 2011).
Methodology
This paper assesses the effect of tourism revenues on the balance of payments deficit in Turkey. For this purpose, the alternative hypothesis of the paper was formed as follows: H1: The amount of tourism revenues has a favourable effect on the numerical balance
of payments.
The unit of quantification of the relationship in the alternative hypothesis is Turkish Liras between the years 1984 and 2012. The data for this study were obtained from the official
Figure 1. Graphs of stationary tests for all data in the study.
databases of the Central Bank of the Republic of Turkey, the Turkish Statistical Institute, and the Directorate of the Balance of Payments. As the data display the characteristics of time series, the analysis was initially focused on the stationary part of the concerning series by using the Augmented Dickey-Fuller Test (ADF) test. Non-stationary time series were tested again to satisfy the stationary assumption by taking the first- or second-order differences if necessary. After this procedure, the study investigated the effect of tourism revenues on the balance of payments with regression analysis. In this study, E-Views 7.1 and SPSS 17.0 computer package programs were used for testing and analysing the data. The data were limited to relating only the primary effects, and the import content generated by incoming international tourist expenditure was omitted.
Results
Figure 1(a) illustrates the findings of the stationary test and demonstrates the bumpy appearance of the data-set. The values being introduced on the line usually do not take place around the zero value because of economic, political, and other considerations particular to the country concerned. This figure also signifies the serious difference between the values of 2010 and 2011, because the amount of the balance of payment deficit for the year 2010 was identified as approximately five times more than the 2011 deficit. This circumstance provokes a structural break between the years being analysed. The huge balance of payment deficit in 2010 can be explained by the unfavourable effects of the European economic crisis on the Turkish economy, which has led to a decrease in exports, production levels, and ultimately to bankruptcies of businesses. Figure 1(b) represents the revised stationary test, which makes the data stationary by using the ADF test and taking the first-order differences. As the graph depicts, the values lie around zero. The same procedure holds for the second variable of the analysis, the tourism revenues. Figure 1(c) indicates that the tourism revenues for Turkey continuously increase year on year and have the characteristic of non-stationary time series as well. Figure 1(d) shows a new graph of tourism revenue data by taking the first-order differences. Hereafter, the data are stationary and the values lie much closer together.
Next, the alternative hypothesis must be tested using regression analysis to determine the effect of tourism revenues on the balance of payments deficits in Turkey during the years concerned. Analysis of variance results enable the separation of variance ascribable to one group of causes from the variance ascribable to the other groups (Fisher, 1936; Landau & Everitt, 2004). The corresponding results indicated that the values (0.049) satisfy statistical significance at thea¼ 0.05 significance level. This result means that the balance of payments deficits can be statistically explained by numerical tourism revenues. The R2value (0.141) designates the explanatory power of the model being fitted. Namely, the annual change in the balance of deficits can be determined by tourism revenues by a proportion of 14%. The direction of this explanatory power can be analysed by studying the significance and the unstandardized coefficients. Tourism revenues are statistically significant ata¼ 0.05, where the significance value (0.049) is less than the significance level. Otherwise, the B value (2 0.569) relating to unstandardized coefficients indicates that a 1% increase in tourism revenues will cause a 0.569 unit decrease in the balance of payments deficit. A negative value in the explanatory power exhibits an inverse ratio between tourism revenues and the balance of payments deficit in these years.
Conclusion
The tourism industry maintains its popularity as one of the best indicators of both the recognition and the economic development and growth of the corresponding countries,
especially since the 1950s. In today’s global world, many countries pay attention to the tourism industry, the so-called ‘industry without chimney’, by increasing investments and providing incentives. The same holds for Turkey, and remarkable efforts have been accomplished on behalf of the developing tourism industry since the early 1980s. Nowadays, the tourism industry makes a considerable contribution to the Turkish economy, with the domination of summer tourism in the southern regions and winter tourism in the northern regions. Together with the revival of the tourism industry, the balance of payments deficits for the post-1980s display uneven lines; however, tourism revenues are implicated in the second-largest income source of the economy under the sub-accounts. In particular, tourism revenues have continuously increased since 2000, and this progress demonstrates the prominent role of the tourism industry in reducing the balance of payments deficits.
Empirical findings also demonstrate that tourism is an important factor in the campaign against the balance of payments. The data concerned, comprising numerical tourism revenues between 1984 and 2012, were analysed to assess the primary effect of tourism revenues on the balance of payments in Turkey. The findings suggest that the increase in tourism revenues in these years has led to a decrease in the balance of payments deficit by 14%. In this case, the alternative hypothesis can be accepted and this 14% reduction in the balance of payments deficit can be explained by the difference in the increase in tourism revenues. Because the balance of payments has various sub-accounts under the current account, the 14% difference can be regarded as reasonably high when compared with all these sub-accounts.
In developing countries, governments should carry on encouraging and developing the tourism industry. In this context, the satisfaction of visitors should be of principal importance. Recent advances in airline transportation will play a major role in breaking down transportation barriers. However, the wider society should recognize the importance of tourism, and raising the level of public awareness is likely to lead to further benefits. As a developing country, Turkey generally concentrates on summer tourism and in this season becomes one of the ten most visited countries in terms of the numbers of international travellers. The potential of winter tourism was also enhanced by hosting the 25th Winter Universiade on January 2011 in Erzurum. All these efforts will have favourable effects on chronic issues such as reducing the balance of payments deficit and the struggle against unemployment, and in this way will contribute to more rapid economic development and growth.
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