Tourism and Economic Growth

Abstract

Whether international tourism can lead to economic growth is an important macroeconomic question for both policy makers and investors. We extend the literature by investigating if tourism development is an additional determinant of income in the presence of the standard income determinants (such as capital accumulation), or if the effects of tourism development on economic growth work through the standard income determinants, instead. Empirically, we develop a tourism-growth model that is an extension of Solow (1956) and estimate our model with a cross-section of 109 countries. Our findings indicate that investments in tourism in and of itself appear to be insufficient for economic growth. Instead, tourism’s contribution to the long-term growth of an economy comes through its role as an integral part of a broader development strategy that is more generally focused on standard income determinants.