Empirical Analysis On The Exchange Rate Influence Tothe Trade Balance Of Canadian Tourism

Tourism service trade, one of11cataloged international service trade, is drawingmore and more attention because of its importance to economic growth, foreignexchange earning and balance. As one of Big7Western Industrialized Countries,Canada’s tourism statistics take the lead in the world while its tourism service trade isat the state of deficit for a long time.This essay is trying to discover the factorinfluencing the Canadian Tourism service trade balance by using the models from thethree perspective of price conduction mechanism,exchange rate pass-throughmechanism and the dynamic analysis of all the variables.At first, the factors influencing service trade balance are summarized on the basisof predecessors’ research. Exchange rate is treated as the main influencing factorwhile variables like revenues are used as control variables. Aiming at the servicetrade’s difference from goods trade,foreign scholars have improved the analysisframework by using the model containing inbound tourism items to analyze theexchange rate’s influence to service trade balance and its dynamic adjustmentprocess.This essay selects the NIT quarterly data from1986to2012in Canada andmakes empirical analyses.Then the empirical analyses are organized as below.(1)The empirical analysisbased on the exchange rate pass-through mechanism.The pass-through elasticity ofeffective change of the exchange rate to Canadian tourism price isdiscussed.Meanwhile, whether the decline of nominal effective exchange rate is goodfor improving the service trade balance from the perspective of exchange ratepass-through mechanism is being analyzed.(2)The empirical analysis based onexchange rate pass-through mechanism.Whether marshall-lerner condition is satisfiedand how the real effective exchange rate influences the trade balance are discussed byusing the three long term congregational equation of tourism service exports, importsand balances.(3)The dynamic VAR model about the influence of exchange rate totourism service trade balance.The dynamic influence mechanism of real effectiveexchange rate to service trade balance, the main influence factor of Canadian tourismservice trade balance, as well as the reason why Canadian tourism service trade is atconsistent state of deficit, are discussed.At last, several conclusions are made as below.(1)The pass-through elasticity of exchange rate ‘s change to the tourism price is almost zero while greater than1as forthe domestic price. The decline of the nominal effective exchange rate is good forCanadian tourism service trade balance, considering the price pass-through.(2)Thesum of absolute values of the import and export elasticity of effective exchange rate ismore than1.The marshall-lerner condition is satisfied. The depreciation of CanadianDollar is good for trade balance and the ‘J’ curve effect is not exited,considering theexchange rate pass-through mechanism other than price conduction.(3)The priceeffect of outbound tourism is greater than income effect. The growth of real incomewould not worsen the tourism service trade balance from the outbound side.(4)Theincome effect of inbound is greater than price effect, so the word-of-mouth effect isobvious.The exchange rate expectation of inbound tourists will influence theirinbound decision.The influence of exchange rate is short.From the long term, thefundamental measure of reverse the trade deficit is improve the competitiveness ofCanadian tourism service trade form the supply side.(5)The improvement of servicetrade has the benign circulation and theMatthewEffect. So it’s vital that the tourismservice trade deficit should be reversed and balance should be reached.