Panel smooth transition regression approach to analyzing tourism development – housing price nexus in G7 countries

The purpose of this study is twofold: first is to examine the nonlinear relationship between tourism development and housing prices, and secondly, the role of economic growth in facilitating the materialization of tourism development and housing prices nexus in G7 countries.

The authors used the newly introduced econometric technique panel smooth transition regression (PSTR) model with two regimes on annual panel data from 1995 to 2018.

Results confirmed that the nexus between the tourism development and housing prices is nonlinear and regime dependent. Moreover, the results showed that the threshold level of economic growth above which tourism development increases the housing prices is 2.63%. The relationship above the threshold value is positive and growth enhancing, while below the threshold, tourism development has a negative effect on housing prices. The economic growth and housing prices also showed the U-shape relationship implying that at a certain level increase in economic growth decreases the housing prices but after a certain level increase in economic growth increases the housing prices.

This paper makes a unique contribution to the literature with reference to developed economies, being a pioneering attempt to investigate the nonlinear relationship between tourism development and housing prices and applying more rigorous and advanced econometric techniques like PSTR.