Does official development assistance promote tourism demand for donor countries? Evidence from Switzerland

Abstract

This study estimates the effect of official development assistance (ODA) on tourism demand of recipient countries for donor countries. We analyzed a panel dataset of 15 recipient countries of Switzerland’s aid from 2005 to 2017, for which data are available. We used both tourist arrivals at lodging establishments, particularly hotels, in Switzerland and hotel nights as proxies for recipient countries’ tourism demand in Switzerland. Using a modified gravity model of trade for empirical testing, we found that an increase of every US$1000 ODA to recipient countries would generate 3.6 tourist arrivals and almost four hotel nights in the following year, after controlling for the effects of GDP and population of recipient countries, the exchange rate and the distance between recipient countries and Switzerland, and trade facilitators. We conclude that ODA generates a positive externality on donor countries, namely, that recipient countries incline to increase their imports from donor countries, at least partially in the form of inbound tourism in donor countries.