Economic policy uncertainty and capital investment: Evidence from European tourism firms

This paper investigates the impact of economic policy uncertainty (EPU) on the capital investment behavior of tourism firms in Europe. Using firm-level data from 4874 firms in 11 European countries for the period 2012–2022, we conduct a dynamic panel data analysis that accounts for the different effects of domestic and global policy uncertainty on the tourism industry and its sub-industries. The results reveal that both domestic and global EPU slow down capital investment in the tourism industry. Notably, global EPU has a significant negative impact in all sub-industries, while domestic EPU mainly affects the hotel sub-industry. These findings remain robust when different firm- and country-specific factors are taken into account. Our study highlights the need for policymakers to reduce policy uncertainty to encourage greater investment. Tourism managers may also benefit from considering both domestic and global uncertainties along with industry-specific characteristics in their investment decisions.