Income and Expenditure in the Tourism Industry: Time Series Evidence from Cyprus

Abstract

This study empirically examines the existence and nature of long-run relationships between, on the one hand, income derived from the tourism industry in Cyprus and tourist arrivals, and, on the other hand, three categories of supply-side expenditure – transport and communication, hotels and restaurants, and advertising and promotion. The results suggest the existence of positive long-run relationships between income derived from the tourism industry and two categories of expenditure (hotels and restaurants and advertising and promotion), with causality running both ways. Causality running both ways is also observable between tourist arrivals and hotels and restaurants. This leads to the conclusion that the expenditure policy followed by the tourism industry in Cyprus during 1975–2001 has been rather effective.