Toward a smaller world. The distance puzzle and international border for tourism

Abstract

The globalization process is assumed to have progressively decreased the effect of geographical distance on worldwide flows of goods, services and people. However, the gravity literature on international trade has traditionally failed to deliver consistent estimates of the diminishing effects of distance on bilateral trade. This controversial issue has been coined the distance puzzle. Gravity models on international tourism demand predict a negative effect of distance on tourism movements, and the concept of distance decay is well established in tourism literature. However, the likely existence of a distance puzzle in tourism has not yet been explored. By estimating a structural gravity model for worldwide tourism flows, we explore distance elasticity dynamics for the period 1995-2019. Afterwards, substitutability between domestic and international tourism is considered, showing that once globalization has been properly accounted for by measuring international tourism costs in relation to domestic ones, the distance puzzle disappears. However, the results are sensitive to the income level of countries, revealing that low-income countries are being excluded from the benefits of the globalization process.