Impact of environmental quality, real exchange rate and institutional performance on tourism receipts in East-Asia and Pacific region

This study attempts to explore the impact of environmental quality, real exchange rate and institutional performance on tourism receipts in East-Asia and Pacific region. A new methodology dynamic common correlated effects (DCCE) is applied to deal with the issue of cross-sectional dependence (CSD) among cross-sectional units. This approach can calculate DCCE by recognizing the heterogeneous slopes and assuming that the variables can be represented by a common factor. The findings explain that traditional approaches give false results due to CSD. Environmental quality is measured through a new indicator ecological footprint. An index for institutional performance is calculated through principal component analysis (PCA) by using seven institutional indicators. Results of DCCE estimation identify that environmental quality, real exchange rate, institutional performance and trade openness have a positive and significant relationship with tourism receipts in East-Asia and Pacific region.