Tourism and uncertainty

Tourism is one of the world’s largest and most dynamic industries, driving economic growth, creating jobs, fostering cultural exchange, facilitating trade, and contributing to global prosperity. Uruguay is a small, open economy in Southern South America, and a high concentration of demand characterizes its inbound tourism sector: its two big neighbors, Argentina and Brazil, jointly account for approximately 70% of total tourist arrivals. This strong dependence leaves Uruguay’s tourism sector particularly vulnerable not only to domestic macroeconomic shocks but also to economic fluctuations and policy instability originating in neighboring countries.
In this paper, we analyze the impact of uncertainty—measured using the Economic Policy Uncertainty (EPU) indices for Argentina and Brazil, together with a composite EPU index for Uruguay—on tourism demand from these two countries, employing Autoregressive Distributed Lag (ARDL) models. We also consider in the models the Gross Domestic Product (GDP) of Argentina and Brazil and the bilateral Real Exchange Rates (RER) of both countries with Uruguay. Our results indicate that higher economic policy uncertainty in Uruguay has a negative effect on tourism demand from Argentina, while no significant effect is found for tourism demand from Brazil. When examining the effects of uncertainty originating in Argentina and Brazil on tourism demand in Uruguay, we find that higher uncertainty in both countries has a negative impact on tourism demand from each respective market.

Keywords: Tourism demand, Uncertainty, EPU, ARDL, Uruguay.