STUDY OF IMPACT OF EXCHANGE RATE ON TOURISM BALANCE OF PAYMENT IN COUNTRIES WITH TOP TOURIST ATTRACTIONS (VECTOR ERROR CORRECTION APPROACH)

Purpose This article focuses on the impact of exchange rate on the balance of payment in selected countries of the premier tourist attractions in two groups of countries; countries with high and lower-middle per capita income in the period of 1995-2013. Countries includes Sweden, Norway, Bulgaria, South Africa, Japan, Iran, Georgia, China, Egypt and Malaysia. Methodology / Approach In this study vector error correction approach and impulse response functions in the form of the J – curve is used. It means that depreciation of domestic currency and exchange rate increase, first worsens tourism balance of payments, then, after some period, improves it. Findings The results show that there has been a J-curve in tourism balance of payments in Sweden, South Africa, Bulgaria, Iran and Egypt. With the shock on the exchange rate, after a period of deterioration the tourism balance of payment improved. However, the J-curve in Japan, Norway, Malaysia, Georgia and China had not been approved. Also, variance decomposition of tourism balance of payments in the countries studied shows that major changes in the balance of tourism in Japan, Sweden, South Africa, Egypt, Malaysia and China arise from exchange rate changes. Most of the changes in the tourism balance of payment of Norway and Bulgaria arise from the changes in foreign income. The changes in the tourism balance of payment of Georgia and Iran are more sensitive to changes in domestic income. Social/physical implications: Findings of this study help policy makers on take suitable decisions about exchange rate changes.   Originality/Novelty of research: The present study, by focusing on the examination of the impact of exchange rate on the tourism balance of payment and statistical population being the group of the top countries in tourist attractions with an emphasis on high, average and low per capita income, differs from the previous researches.