When the Economy Grows, Brazil Travels: Income and Aggregate Tourism Demand, 2018–2026

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Abstract
This study examines how aggregate economic activity (used here as a proxy for income), the real exchange rate, tourism sector prices, and the policy interest rate relate to aggregate tourism demand in Brazil, using monthly public data from 2018 to 2026, accounting for the disruption caused by the COVID-19 pandemic. Using an autoregressive distributed lag (ARDL) framework, the analysis compares a specification that leaves the pandemic period unconstrained against one that isolates it. This income proxy shows a consistent, positive association with tourism activity, evidence of macroeconomic co-movement between the tourism sector and the Brazilian economy rather than a household-level income elasticity estimate. The real exchange rate and sector prices are associated with tourism activity mainly in the months right after a change, but this does not persist once the pandemic period is isolated. The policy interest rate shows no reliable association with tourism demand once that period is treated separately; the relationship that initially appeared relevant surfaces only when the shock is left unaddressed. These findings suggest that tourism policy in Brazil may benefit from tracking the economic cycle rather than short-term currency or interest rate movements, and illustrate how an unmodeled shock can distort elasticities in demand studies more generally.

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