Macro drivers and tourism in highly trade-open economies: Evidence from an extended gravity model

This study examines the role of key macro drivers – foreign reserves (FR), exchange rates (ER), and trade openness (TOP) – in shaping tourism (TOR) development across highly trade-open economies over the period 1995–2022. Grounded in an extended gravity model framework, the study employs pooled ordinary least squares (OLS), fixed-effects estimation (FEM), and the generalized method of moments (GMM), complemented by Pedroni and Johansen cointegration tests and Granger causality analysis to capture both long-run relationships and causal dynamics. The findings reveal that FR, ER, TOP, PCI (per capita income), foreign direct investment (FDI), population (POP), and labor force participation (LFP) significantly promote TOR development, whereas gross national savings (GNS) exert no significant effect. Furthermore, the findings confirm the existence of both short- and long-run relationships among the drivers. The study identifies a bidirectional relationship between population and TOR development, while TOP, PCI, ER, and FR exhibit unidirectional causal effects on TOR. These findings underscore the pivotal role of macro stability, global economic integration, and demographic dynamics in fostering TOR development in highly trade-open economies.