Does tourism promote economic growth? A fractionally integrated heterogeneous panel data analysis

• Published in: Tourism economics : the business and finance of tourism and recreation Vol. 28; no. 5; pp. 1355 - 1376
• Main Authors: Pérez-Rodríguez, Jorge V, Rachinger, Heiko, Santana-Gallego, María
• Format: Journal Article
• Language: English
• Published: London, England SAGE Publications 01-08-2022; Sage Publications Ltd
• Subjects: Data analysis; Destinations; Economic analysis; Economic crisis; Economic development; Economic growth; Economic models; Empirical analysis; Innovations; Longitudinal studies; Panel data; Tourism; Tourists; recent financial crisis; tourism-led growth hypothesis; panel data; fractional integration and cointegration
• ISSN: 1354-8166; 2044-0375
• DOI: 10.1177/1354816620980665

In this article, we analyse whether tourism promotes economic growth using a general dynamic panel data model that incorporates individual and interactive fixed effects and allows for contemporaneous correlation in model innovations. The empirical study is based on quarterly series of GDP and tourist arrivals for 14 European countries covering the period from 1995 to 2019. Results indicate that the case for a positive long-run relationship between tourism and economic growth is rather weak, being slightly stronger for the period prior to the global economic and financial crisis from 2007 to 2010. When applying panel fractional cointegration techniques, we find evidence in favour of the tourism-led growth hypothesis (TLGH) for the full sample mainly for North European countries. For the pre-crisis period, on the other hand, we find evidence in favour of the TLGH for the relevant tourist destinations Spain and France.