Tourism and economic development: a panel data analysis for island countries

Abstract

Since the scientific literature has already shown that there is a causal relationship between tourism and economic growth in island countries, this paper aims, as an additional step, to determine whether there is a causal relationship between tourism and economic development in this type of destination. For this purpose, the Granger causality test is used, applying the econometric adaptation made by Dumitrescu and Hurlin, using a sample of 20 island countries for the period 1995-2019. From the analysis carried out, two results stand out. On the one hand, there is a causal relationship from tourism to economic development. This relationship occurs with a certain delay, to the extent that the public administration takes advantage of the economic growth generated by tourism to finance specific policies that improve the living conditions of the population. On the other hand, it has been shown that there is a causal relationship indicating that development contributes to the expansion of tourism. This is because tourists, in addition to valuing the factors that make a territory or its resources attractive, increasingly demand that destination countries have an adequate level of development in order to obtain a satisfactory tourist experience. Finally, policies are recommended to improve the living conditions of the inhabitants, as well as to reduce the levels of poverty of the population, health, education or security, which will translate into a final improvement of economic development.