Faruk Balli, Hatice O. Balli, Rosmy Jean Louis
This article is primarily an empirical work anchored in the well-known theoretical underpinning that consumers maximize utility by choosing the optimal levels of consumption and leisure activities. We improve on the existing literature in differentiating between domestic and foreign leisure activities to determine to what extent domestic consumption of countries in recession is financed by tourism revenues coming from foreign countries experiencing economic growth. In fact, we provide the first empirical evidence that international tourism receipts serve as an important shock absorber to domestic output shocks above and beyond the well-known risk- sharing channels of saving, capital/credit markets, international aid, fiscal transfers, and remittance inflows documented in the literature. We quantify the extent of risk sharing and provide both cross-section and panel data estimates of its likely determinants. The results show that countries that attract tourists from a wider pool of nationalities benefit the most.
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