important for countries with comparative advantages in tourism. That tourism promotes economic growth is confirmed in Dritsakis (2004) for Greece, Balaguer and Cantavella-Jordá (2002) for Spain, Oh (2005) for the Republic of Korea, Durbarry (2004) for Mauritius, and Tosun (1999) and Gunduz and Hatemi (2005) for Turkey. Cross-country studies by Sequeira and Campos (2006) and Brau et al. (2003) demonstrate that tourism-specialized countries grow more than others. Sinclair's (1998) survey indicates that the main channel through which tourism helps growth is the provision of foreign currency, which can finance imports of capital goods. Culiuc (2014), based on a gravity model, found that the income, real exchange rate and bilateral trade flows of source countries have a strong impact on world tourist arrivals, although the impact is much reduced for smaller countries. Wolfe and Romeu (2011) reached similar conclusions. Lederman and Maloney (2007) also found that tourism exports have less volatility than other natural resource-based export industries. The following sections review the literature on specific determinants of tourism demand.

# **IIa. Price elasticity of tourism**

An important feature of tourism markets is whether tourism services are price elastic or not. The price of tourism is a multivalued concept, as tourism services differ in quantity and quality more than other goods and services. The price of tourism services depends on whether they are denominated in local or foreign currencies, and most of the studies reviewed below use different measures of the real exchange rate. The price of the tourism-related services should be specific to the type of consumption; however, detailed price data are not common in tourism empirical analysis; prices are generally replaced by average spending per tourist and deflated by a real exchange rate index.

In most papers, the real exchange rate has the expected effect: an appreciation of the origin’s currency increases bilateral tourism while the appreciation of the destination reduces it, and an increase in income tends to increase demand more than proportionately. If tourism is inelastic; that is, the price elasticity of tourism is less than one, then increasing its price will reduce tourist arrivals and that will result in a higher spending per tourist (total revenues increase more than the reduction in tourist arrivals). If, on the contrary, tourism is elastic; that is, price elasticity is more than one, implying that tourism is a luxury good, then increasing the price will produce a reduction of the average spending per tourist. The estimated elasticity is in general large and is highly sensitive to the estimation techniques and measures of the real exchange rate. Rosensweig (1988) finds elasticities of substitution of Caribbean islands with each other is 1.33 to 2.45, with Mexico 1.85 to 1.00 and with Europe 1.7, depending on whether the origin is restricted to the United States or all countries. Rosensweig’s estimates are broadly in line with those of Papatheodoru (1999), who estimates a model in levels for the Mediterranean region for tourists from France, Germany, and the United Kingdom and finds price elasticities greater than 1; however, Garín-Muñoz and Pérez Amaral (2000) estimate a dynamic model in levels and a non-dynamic differences specification on the determinants of tourist flows to Spain and obtain price elasticities of only 0.30 and 0.25 respectively. Song et al. (2000), working in an error correction framework on single country data, obtain price elasticities that range from 0 to 2 for the principal destination countries of English tourists. Estimated income elasticities tend to confirm the intuition of the sector as being a luxury 4