Determination of international tourism demand in Turkey: Panel data analysis

Abstract

The tourism sector represents a vital source of income for developing countries. Moreover, as a labor-intensive industry, it significantly influences key macroeconomic indicators such as employment and income generation. Sustaining tourism demand is therefore crucial for maintaining economic vitality. Identifying the determinants of tourism demand enables policymakers to implement systematic and targeted strategies to support the sector. In this context, the primary aim of this study is to examine the key factors influencing international tourism demand, with a particular focus on Türkiye and other developing economies where tourism constitutes an essential pillar of national income. The study examines Türkiye's tourism demand from 24 countries classified as developed economies. These countries share comparable per capita income levels, as they fall within the upper-middle income group according to the World Bank classification. In addition to their economic similarities, they also exhibit comparable characteristics in terms of tourism sector development. Each country possesses distinct touristic attractions, and tourism revenues constitute a significant proportion of their gross domestic product (GDP). Within the scope of the study, relevant literature was reviewed to guide the modeling process, and the dependent and independent variables were selected accordingly. The dependent variable is the number of tourists arriving in Türkiye from each source country, used as an indicator of international tourism demand. The independent variables include tourism expenditures, exchange rate, air pollution, purchasing power, political stability, price competitiveness, population, trade volume, and the impact of the COVID-19 pandemic. The study utilizes a 24-year dataset covering the period from 2000 to 2023, compiled from the World Bank, UNWTO, and the national statistical agencies of the respective countries. Given that the dataset includes both time-series and cross-sectional data, fixed and random effects panel data models were employed. The findings indicate that increased tourism expenditures positively influence tourism demand for Türkiye. Additionally, an improvement in Türkiye's relative price competitiveness enhances its appeal as an affordable destination, thereby increasing tourist inflows. Conversely, a negative relationship was found between exchange rate fluctuations and tourism demand. Environmental factors, such as air pollution of origin countries, also negatively impact demand. Moreover, political instability in source countries has been shown to adversely affect the Türkiye's attractiveness to international tourists.