221ECN Literature Review: Exchange Rate Volatility & Tourism

This report, prepared for a Developing Academic and Professional Skills module at Coventry University, investigates the impact of exchange rate volatility on the tourism industry. The research begins by posing a central question about the problem area and its importance, emphasizing the significant growth of international tourism and the influence of macroeconomic factors, especially exchange rates. The report then delves into a discussion of relevant literature, exploring specific problem areas identified by researchers such as Adeniran, Yusuf, and Adeyemi (2014), who examined the impact of flexible exchange rates, and Alagidede and Ibrahim (2017), who highlighted the damaging effects of excessive volatility. The report synthesizes findings from multiple studies, including those by Grossmann, Love, and Orlov (2014), De Vita (2014), Agiomirgianakis, Serenis, and Tsounis (2014), and Chiu and Yeh (2017), noting both consistencies and variations in results. The review identifies limitations in the literature, particularly the reliance on quantitative methods and the lack of focus on qualitative and social implications. The conclusion outlines how this research contributes to existing knowledge, emphasizing the use of qualitative primary data to explore the social impact of exchange rate volatility on tourism businesses. The report aims to provide insights into the complexities of this economic relationship, offering a comprehensive overview of current research and suggesting avenues for future investigation.

This document is for Coventry University students for their own use in completing their assessed work for this module and should not be
passed to third parties or posted on any website. Any infringements of this rule should be reported to [e-mail]
Section A - The research question
1. What is the problem area your research evaluates and why is your research
important? 200 words
The international tourism industry has experienced a tremendous growth in the past
decade. Tourism industry in the developed as well as less developed countries contributes
significantly in the GDP of the respective countries. As economic growth occurred in the
international market and people have more disposable income and an improved lifestyle,
the number of international tourists across the world has increased significantly (Mason
2015). However, the international tourism depends on many macroeconomic factors, and
exchange rate is one of those. Changes in the currency values and fluctuations in the
foreign exchange rate are two important factors that can affect the international trade as
well as international tourism.
There are many impacts of the currency and exchange rate fluctuations on the economic
growth of the countries. The price of goods and services change and the level of revenue
gets changed due to exchange rate volatility and changes in the value of the currency. In
the tourism business, the volatility of the exchange rate creates an impact on the
demands of the tourism places and for the products and services. Thus, through this
research, the research will conduct a study on the specific research topic, that is, “impact
of exchange rate volatility (international trade) towards the tourism business". This study
will help to evaluate the impact of the volatility of exchange rate on international trade in
particularly tourism industry.
Section B – Discussion on relevant literature
2. What specific problem areas have the researchers identified and why have they
addressed these problem areas? 500 words
Exchange rate volatility is a very important concept in the international economy and
international trade. Adeniran, Yusuf and Adeyemi (2014) conducted an empirical study on
this topic in the context of Nigerian economic growth and highlighted that the country
shifted from fixed exchange rate to flexible exchange rate in 2013 and the authors
suggested that export promotion strategies are important to have a trade surplus
balance, conducive environment, effective monetary and fiscal policies, adequate security
in the economy, and improved infrastructures to attract investment in Nigeria. Thus, it
can be said that flexible exchange rate is beneficial for creating situations for investments
which will benefit all the economic sectors including tourism.
On the contrary, Alagidede and Ibrahim (2017) showed that excessive volatility is
damaging to economic growth. The authors explored the cause and effects of the
exchange rate volatility on the economic growth in the context of Ghana. The study
showed that majority of the shocks to real exchange rate are self-driven and the rest is
due to growth of money supply and government expenditure, output shocks and terms of
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passed to third parties or posted on any website. Any infringements of this rule should be reported to [e-mail]
trade. However, although much and frequent volatility is not expected, the growth
enhancing impact can originate from more efficient resource allocation and innovation
pushed by exchange rate volatility.
Grossmann, Love and Orlov (2014) highlighted the dynamics of the volatility of exchange
rate using a panel vector autoregressive model (VAR) approach and it was found that
there is dynamic relationship among the macroeconomic, financial variables and
exchange rate volatility and the impact is higher in the developing economies than in the
developed economies. Thus, exchange rate volatility has significant impact on the
macroeconomic variables and hence on the variables of the international trade, which in
turn also affects the tourism businesses like the other industries.
In this context, another study can be mentioned. De Vita (2014) showed though panel
data investigation that the volatile exchange rate regimes have impact on international
tourism flows. By employing empirical techniques the authors studied international
tourist flows in OECD and non-OECD countries for 1980 to 2011 and the findings show
that during this time period there have been multiple changes in the exchange rate
regimes in all these countries and that had significant impact on the tourism flows. It has
been suggested that stable exchange rate is beneficial for tourism industry as that does
not affect currency conversion much and an economy with stability and certainty.
On the contrary, Agiomirgianakis, Serenis and Tsounis (2014) investigated the impact of
exchange rate volatility on the inflow of tourists into Turkey between 1994 and 2012, and
showed a negative relationship between the tourist inflows and exchange rate volatility. It
was also found that relative price ratio affects the tourist inflow as highly expensive
destinations deter the tourist inflow and the impact of GDP per capita at the places of
tourist origin, which is measured by Purchasing Power Parities, has a positive influence on
the flows of the international tourists in Turkey during the period of investigation. Thus,
the authors suggested that to make the tourism industry and products attractive to
international tourists, exchange rate volatility should be avoided as political and financial
stability are required to have a growing tourism industry and tourist inflow.
However, Chiu and Yeh (2017) showed from an empirical study that there is a nonlinear
relationship between tourism growth and economic growth and the tourism development
conditions differ in different countries, among which exchange rate volatility is only one
factor.
3. What were the findings from the 5-8 relevant literature reviewed? In what ways
are these results consistent and/or differ? What reasons were provided for the
variations or similarities in results? 250 words
6 literatures were reviewed above to explore the significance of exchange rate volatility
and its impact on the growth of international tourism. It has been found from these
literatures that exchange rate volatility has a significant impact on different types of
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passed to third parties or posted on any website. Any infringements of this rule should be reported to [e-mail]
macroeconomic variables, which include the financial variables and terms of trade that
influence the economic growth of a nation. Tourism industry is an important sector that
contributes in the revenue and increase in the number of international tourists has
benefits for the revenue earning. However, it has also been seen that excessive exchange
rate volatility has negative impact on the tourism industry as well as for the entire
economy. It implies uncertainty and instability of the economy, which discourages the
international tourists to visit.
All the studies have used quantitative or empirical methods for conducting cross sectional
investigations to find out the impact of exchange rate volatility. The reason behind that is
there have been changes from fixed to flexible exchange rates and vice versa in different
countries, and changes in the exchange rates cannot be realized in the short term. The
effects take a long time to cast the impact on the economic condition of the countries and
hence, the researchers mostly examined the cross sectional data of almost 2 decades on
exchange rate volatility and international tourist visitation. While, it has been seen that
flexible exchange rate is beneficial for creating investment opportunities, it was also seen
that excessive volatility has negative impact on the economy in the long term. However,
regarding the impact on the tourism industry, all the studies showed that too much
volatility should be avoided to attract more international tourists.
4. What were the weaknesses and/or limitations of the literature reviewed?
150 words
The weaknesses of these literatures were that all these studies were conducted using
quantitative or empirical methods. Different quantitative methods were used by different
authors in different contexts and for different countries. However, those findings showed
numerical and scientific implications of the research issue. On the other hand, the social
implications were not addressed in these studies. There are various factors that are
affected by the research variables like employment, inflation, international trade, growth
of tourism businesses, such as, growth of new products, services and destinations and
development of subsidiary services. These aspects not only have an economic impact but
also have a social impact on the population of the country.
The limitation of these literatures is that none of these studies focused on the qualitative
aspects of the research variables. Thus, qualitative study is also required to analyze the
social impact of the research variables. Moreover, all these studies conducted secondary
research on the research issue. Primary data was not used as that would not have been
beneficial for cross sectional study with panel data.
Section C - Conclusion and the impact of your research
5. How does your research contribute to existing knowledge in your research area?
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What is the importance of your research contribution? 150 words
The research study will be conducted using qualitative primary data. A case study
organization, that is, a tourism business will be chosen in the UK and qualitative data on
the impact of exchange rate volatility on the business performance will be collected
through an interview process. This method will help in addressing the social implications
of the currency fluctuations and exchange rate volatility and their impact of the growth of
the tourism business in the international market. It has been found from the earlier
studies that exchange rate volatility has both positive and negative impact on the
economy. On one hand, controlled volatility creates investment opportunities which are
beneficial for international trade, while on the other hand, too much volatility leads to
political as well as financial instability in the economy that hampers the growth of
international business in the nation. Thus, through a qualitative study with primary data
will help to get an insight about the social impact of exchange rate volatility on the
performance and growth of international tourism business.
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This document is for Coventry University students for their own use in completing their assessed work for this module and should not be
passed to third parties or posted on any website. Any infringements of this rule should be reported to [e-mail]
References
Adeniran, J.O., Yusuf, S.A. and Adeyemi, O.A., 2014. The impact of exchange rate fluctuation on the
Nigerian economic growth: An empirical investigation. International Journal of Academic Research in
Business and Social Sciences, 4(8), p.224.
Agiomirgianakis, G., Serenis, D. and Tsounis, N., 2014. Exchange rate volatility and tourist flows into
Turkey. Journal of Economic Integration, 29(4), pp.700-725.
Alagidede, P. and Ibrahim, M., 2017. On the causes and effects of exchange rate volatility on
economic growth: Evidence from Ghana. Journal of African Business, 18(2), pp.169-193.
Chiu, Y.B. and Yeh, L.T., 2017. The threshold effects of the tourism-led growth hypothesis: Evidence
from a cross-sectional model. Journal of Travel Research, 56(5), pp.625-637.
De Vita, G., 2014. The long-run impact of exchange rate regimes on international tourism
flows. Tourism Management, 45, pp.226-233.
Grossmann, A., Love, I. and Orlov, A.G., 2014. The dynamics of exchange rate volatility: A panel VAR
approach. Journal of International Financial Markets, Institutions and Money, 33, pp.1-27.
Mason, P., 2015. Tourism impacts, planning and management. Routledge.
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