Economic freedom index effects on inbound tourism in European countries: A spatial analysis

Despite the significance of economic freedom in tourism dynamics, especially from a spatial standpoint, its nuanced influence remains unexplored mainly in current research. To fill this gap, our study introduces a novel spatial panel data analysis to investigate how various components of the economic freedom index affect tourist arrivals in 41 European countries from 2005 to 2018. By employing this innovative approach, we uncover the complex interdependencies between economic freedom and tourism and highlight the significance of regional economic characteristics on the tourism sector's health. Our findings reveal that a one percent increase in GDP per capita of neighboring nations corresponds to a 0.4 percent increase in tourist arrivals to the home country. In comparison, a similar rise in neighboring countries' prices leads to a 0.4 percent decrease in inbound tourists. Most economic freedom variables, including the Business Freedom Index, Investment Freedom Index, Labor Freedom Index, Trade Freedom Index, and Government Integrity Index, demonstrate statistically significant positive effects. However, a one percent increase in the Monetary Freedom Index of neighboring countries results in a 0.747 percent reduction in homebound tourists. Notably, enhancements in the country's and neighboring countries' Investment Freedom Index and Government Integrity Index contribute to increased arrivals. This research contributes to the broader understanding of economic policies' impact on tourism, offering valuable insights for policymakers aiming to leverage economic freedom for tourism development. The application of a spatial panel data approach marks a significant methodological advancement in tourism studies, opening new avenues for analyzing economic influences on tourism at a regional level.