Impact of export of travel services on current account balance and growth in mediterranean countries

Abstract

Observing the expanding and high share of export of travel services in both GDP and total export of services in Mediterranean countries, we focus our research on travel service export in twelve countries from 1998 to 2018. We investigated both short-term and long-term significance of export of travel services for GDP growth in Mediterranean countries using the VAR and VECM model and the fixed-effects panel OLS model. In our analysis of significance of export of travel services on current account balance, we applied an accounting approach. Our application of the fixed-effects OLS model on the panel data with GDP growth rate as the dependent variable has shown that, in the short run, export of travel services has a positive impact on GDP growth. In the long run, Granger causality based on block exogeneity Wald tests evidenced that export of travel services has a positive impact on GDP growth, but only at the 10% significance level. Following the accounting approach in our analysis of impact of export of travel services on overall current account balance, we evidenced a strong relevance of export of travel services in achieving current account balance equilibrium.