Working Paper: CEPR ID: DP16738
Authors: Gian Maria Milesi-Ferretti
Abstract: The COVID-19 pandemic has led to a collapse in international travel and tourism. This paper explores how the cross-country impact of the pandemic relates to countries’ dependence on these activities as a source of revenue. It first documents the size of the shock to net revenues from international travel and tourism for the balance of payments. For the median highly tourism-dependent economy the shock exceeded 10 percentage points of GDP, leading to a sizable current account deterioration. Indeed, empirical evidence suggests that current account adjustment in 2020 relative to pre-crisis forecasts was driven to an important extent by the collapse in revenues and expenditures on international travel as well as by the collapse in oil prices. On the economic growth front, the paper shows that the share of tourism activities in GDP is the single most important predictor of the growth shortfall in 2020 triggered by the COVID-19 crisis across the world as well as within the eurozone, even when compared to a variety of measures of the severity of the pandemic.
Keywords: balance of payments; covid-19; economic crisis; growth; pandemic; tourism; transportation
JEL Codes: F14; F4; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| improvements in primary income balance and declines in imports (F32) | offset decline in tourism revenues (Z30) |
| share of tourism in GDP (Z30) | growth shortfall in 2020 (F62) |
| tourism dependence (Z30) | economic contraction (F44) |
| travel shock (R41) | decline in net revenues from international travel (Z30) |
| decline in tourism revenues (Z30) | current account deterioration (F32) |
| tourism dependence (Z30) | cross-country variance in growth declines (O47) |