The Asymmetric Effects of Exchange Rates on the US Tourism Balances in the NAFTA Countries: An Application of The Nonlinear ARDL Approach

This study primarily aims to investigate the effects of real exchange rate changes between the USD-Mexican Peso (MXN) and the USD-Canadian Dollar (CAD) on the US tourism balances bilaterally over the period 1996M1-2016M6. To this aim, we apply both linear and nonlinear ARDL cointegration approaches. The nonlinear ARDL approach, developed by Shin et al. (2014), allows us to examine the separate effects of both depreciations and appreciations in the USD on the US tourism balances. In this respect, this study is the first attempt at applying the nonlinear ARDL cointegration approach to a tourism demand model. The empirical findings indicate that Mexican and Canadian tourists positively respond to depreciations in the USD against the MXN and CAD and thereby improve the US tourism balances bilaterally with these two countries. Additionally, the nonlinear ARDL approach reveals that while depreciations and appreciations in the USD have different (asymmetric) effects on the US tourism balances with Mexico, the same changes in the USD have symmetric effects on these balances with Canada. As a secondary aim, this empirical study also tries to draw attention to the US tourism balances with these two NAFTA countries.