Tourism Specialization, Growth Stage, and Economic Growth

Abstract

This paper investigates the nonlinear relationship between tourism and economic growth using a balanced sample of 58 countries in three continental samples (Africa, Asia, and Latin America) for the 2003-2017 period. First, we document an asymmetric threshold effect of tourism on economic growth. By utilizing Hansen’s (1999) endogenous threshold regression model, we show that a single tourism threshold cutoff exists and that tourism receipts influence growth only till the threshold cutoff point in all three continental samples; however, this influence is nonexistent past the threshold point. Second, a quantile effect decomposition shows separate marginal effects for the tourism and economic growth relationship across the growth distribution. By using Firpo et al.’s (2009) unconditional quantile regression approach, we show that compared to their regional cohorts, slow- and medium-growth African countries, slow-growth Asian countries, and medium-growth Latin American countries exhibit substantially higher economic growth benefits from tourism. We explain these empirical observations and discuss their policy implications.

JEL codes: O40, O47, O55, Z30, Z32.