International tourist arrivals and the services balance: an empirical analysis for the EU27 countries

It is often proclaimed by policymakers, politicians and the press alike, that tourism may improve the Services Balance. This assertion, however, is not substantiated by rigorous empirical research, a critical gap that this paper attempts to address. Utilizing a EU27 panel dataset from 2000 to 2023, we empirically investigate the relationship between inbound tourism and the Services Balance ratio (credits over debits, SBR). Our findings reveal a significant non-linear impact of international tourist arrivals (ITA) on SBR. We also demonstrate that there is no statistically significant difference in this impact around the COVID19 regime. Furthermore, this study quantifies the specific threshold (15.2 million) of ITA above which a statistically significant and increasingly positive effect on SBR may be observed in EU27 member states. The empirical policy implications arising from our paper suggest that exceeding this threshold could strategically leverage tourism to reap increasing benefits for the EU27 countries’ Services Balance.