The obtained findings imply that low-income countries should enhance their economic growth by strengthening their tourism industry. Millions of tourist travel abroad and significantly affect the income level of countries. Thus tourism is considered to be a crucial sector nowadays.
This paper will look at how tourism affects economic growth across countries around the world for the years capturing to In order to confirm the importance of tourism industry, some statistical facts from as well as are presented. Due to the dynamic formation of the influx of people all around world throughout the year, we applied Generalized Method of Moments GMM which broadly will be justified in the methodology section.
This paper, by far, has the widest range of sample size with a panel of countries and 21 years of data i. By disaggregating destination countries based on income disparity, we found that the results vary.
In general, our findings confirm the significant impact of tourism on the economic growth of destination countries especially in low-income countries. The paper proceeds as follows.
Section 2 reviews the literature. Section 3 provides the source of data and the econometric model. Section 4, will cover the empirical results by providing interpretations, and finally section 5 will conclude the paper. The list of countries sampled will be presented in Appendix 1. Also for undeveloped and developing countries it might be a motivation to keep the country better off in terms of the outlook of a country.
Indeed, Eugenio-Martin et al. Seetanah , for instance, showed that tourism plays vital role in economic growth with conventional augmented Solow growth model by applying dynamic GMM for 19 island economies for 27 years of sample. This might be expected for other island economies as well since they mostly rely on tourism.
Fayissa, et al. Durbarry , found that in addition to the sugar and manufacturing sectors, there is a significant positive impact of tourism on economic growth of a small island Mauritius for the period In an extensive literature survey by Pablo-Romero and Molina it has shown that the majority of the studies confirmed the tourism-led growth theories i. Brida and Pulina , in an extensive literature survey on tourism-led growth hypothesis, also show vast majority of the studies found tourism to be an important drive of economic growth both in developing and developed countries.
Narayan et al. Belloumi, found that tourism-led hypothesis is held for Tunisia where tourism has a great share over total GDP, between and Ghali looked at the relationship between tourism and economic growth from different perspective. As such, he investigated the economic growth in the presence and absence of tourism growth and showed, the economic growth has continued increasing in both cases while with tourism growth increased substantially more between and A similar approach is introduced by Ivanov and Webster as they compared the growth of GDP which is generated by tourism and by other industries, and concluded that although tourism is an important source of economic growth, other industries in total make greater contribution to the growth of GDP in Cyprus, Greece and Spain- where tourism is a vital economic source of these countries in late s and early s.
Ivanov and Webster , looked at the overall perspective of whether tourism has any impact on economic growth over countries —regardless of their well-being, size or such features- across the United Nations for the first decade of millennium. Their results suggest that the pattern for tourism and economic growth changes in line with political and social on- going in the world. Dritsakis , showed a significant impact on economic development of eight Mediterranean countries- where tourism is a substantial source of income- between and Lanzaet al.
Almost similar approach is taken by Santana-Gallegoet al. Algeri , found a positive and significant link between tourism and economic growth of countries in the vast majority of the countries sampled- which are mostly small but have high rate of natural attractions.
This pattern is similar with particular small regions of countries. Although, majority of studies found a definite relationship between tourism as a sector and economic growth, Vidal found no evidence as to tourism significantly enhance economic growth of developing countries from to , but still a positive relationship might be interpreted by the need of a better methodology.
Balaguer and Cantavella- Jorda , showed a long run tourism effect on economic growth of Spain with a multiplier effect. Marrocu and Paci found that tourism enhance the knowledge diffusion which result in productivity growth of European countries in their cross-sectional study. Therefore, the conventional sources of economic growth are included namely: investment in physical capital as a percentage of GDP FC , human capital HumCap , household final consumption expenditure per capita as a measure of income CON.
This is due to the fact that tourism consumption directly stimulates the development of traditional industries such as civil aviation, railway, highway, commerce, food, accommodation and further promotes the development of modern services such as international finance, logistics, information consultation, cultural originality, movie production, entertainment, conferences and exhibitions Wang et al.
Investment in physical capital FC and human capital HumCap account for the conventional sources of economic growth. Uzawa has assumed that an education sector that produces human capital exists in the economy. The resources that are allocated in the education sector are expected to produce new knowledge human capital , new knowledge increases the rate of production and are therefore expected to have positive impact on economic growth.
When it comes to physical capital FC it is expected that an advanced production technology can be obtained by increasing the investment in physical capital Xiaoqing, On the one hand, if manufacturing sectors process physical capital and advanced production technology resources can be put too rational use, and all of these will enlarge the scale of production and increase employment; therefore, the level of the national income can be improved.
Seetanah indicates that the impact of household consumption expenditures on economic growth is controversial. Neoclassical economic theory assumes that higher household consumption expenditures tend to lower economic growth by lowering investment because of reduced savings.
On the other hand, Myrdal argues that increased household expenditures on health, nutrition and education are actually economic growth enhancing rather than growth-retarding, as healthy and educated households are more productive, contributing to economic growth. Consequently, the effect of household consumption expenditures CON on economic growth cannot be determined a priori.
Seetanah and Fayissa, et al. This is why the impact of economic freedom is controlled in this paper. EFI is a measure of the economic freedom index. Owen and Sen have argued that freedom political, economic, social, transparency and security is a necessary condition for economic growth. Heritage Foundation defines economic freedom as the fundamental right of every human to control his or her own labor and property.
In an economically free society, individuals are free to work, produce, consume, and invest in any way they please. The Index of Economic Freedom, that is used as a proxy variable of economic freedom in this paper, documents the positive relationship between economic freedom and a variety of positive social and economic goals. The ideals of economic freedom are strongly associated with healthier societies, cleaner environments, greater per capita wealth, human development, democracy, and poverty elimination.
Economic freedom measure is based on 12 quantitative and qualitative factors, grouped into four broad categories, or pillars, of economic freedom: Rule of Law property rights, government integrity, judicial effectiveness ; Government Size government spending, tax burden, fiscal health ; Regulatory Efficiency business freedom, labor freedom, monetary freedom and Open Markets trade freedom, investment freedom, financial freedom.
Each of the twelve economic freedoms within these categories is graded on a scale of 0 to Taking into account its positive impact of national income, this variable is taken as control in this paper. In order to capture the impact of trade or openness of the economy on economic growth, the variable EXPgdp is introduced. Empirical results most often suggest that, more outward-oriented countries register better economic growth performance, therefore positive impact of EXPgdpon economic growth is expected.
On the one hand, the debate on the estimation methodology is still open. Taking into account these debates the trade openness is taken as a control variable in this paper. Our focus will be on a sample of countries for the period —, but for better comparative insights and discussions, we also extended the study while testing for income disparity.
The countries used in this analysis are listed in the appendix 1. All of the variables are reported to deviate from normal distribution skewness-kurtosis test.
The presence of unit root is tested applying Harris—Tsavalis unit root test. Due to these issues, and in order to ease interpretation and comparison between models, variables are expressed in natural logarithmic form. The meaning of variables is described above. Besides these, models will be estimated for three different income groups.
Models are initially estimated using fixed and random effects model. Hausman test is used to decide between fixed and random effect.
Based on the Eigenvalue result on Table 5, there are three cointegrated variables given that the Max-Eigen statistic are higher than their respective critical values Table 5: Johansen Co-integration test based on Eigenvalue Hypothesized Max-Eigen 0.
The study accepts the null hypothesis of the absence of short run relationship given that the tabulated t-statistics are less than the calculated equivalents 2. The result of the normalized regression after multiplying the equation with the minus -1 is presented in Table 7.
This means that unit rise in tourism revenue will generate less than a proportionate rise in the real GDP. There is also an inelastic and reversed relationship between revenue from tourism and real GDP. A positive but inelastic relationship however subsists between exchange rate and real GDP. The relationship between inflation rate and real GDP is positive and neutral.
The result of the F-Statistics test deployed to determine the over significance of the overall model confirms the statistical significance of the variables given that the calculated F- value 3. F 2,24 0. Chi-Square 2 0. Notwithstanding that Ordinary Least Squares is violated by its biased or lack of consistency of the estimators, Gujarati advised that, this does affect their efficiency.
The results of the estimated model can therefore be accepted for policy formation. In this case tourism shocks is presented in Figure 3. One standard deviation positive shock of revenue from tourism results has no apparent impact in the first 12 year.
This is in congruence with the result obtained from the Vector Auto-regressive model which also shows the absence of short run impact.
The impact on inflation rate falls from first to the second year and then a jump in the third year trend is followed by a sharp slump in year four. It rises above the fifth year but falls again in the seventh year. With respect to exchange rate, a sharp fall is observed consequent upon a standard deviation in the first year.
The rate oscillates widely during the capture period. Similar fluctuation is reported for the public capital expenditure which is indicative of the possible absence of a consistent tourism policy requiring infrastructural investments. Furthermore, a standard deviation positive shock of revenue from tourism cause a fall in the inflation rate from the second to the third year but then the trend shows the fluctuations below the line till the eighth year. The long and short run relationship estimation conducted using cointegrating tests do not possess the capacity to signpost the causality direction.
In order to determine the 13 direction, the Toda Yamamoto causality test which is presented next section has been deployed. Toda Yamamoto Causality Test The result of the complementary Toda Yamamoto causality test with respect to the real GDP and revenue from tourism with maximum lag order 2 is reported in Table 9.
Excluded Chi-sq. Df Prob. LNRT 2. This is due to the fact that although revenue from tourism causes growth in the real GDP, the reverse is not the case. The same uni-directional relationship from revenue from tourism on the one hand to foreign exchange and the public capital expenditure exists at 5 percent 1 percent respectively on the other. Similar one way directional relationship subsists betweem the combined impact of all the variables and the revenue from tourism.
Similar findings were made by Geloso, Lesher, and Pinali in the study of tourism sectors in Indonesia, Brazil and India. The tourism-led growth hypothesis in the long-run was established by Balaguer and Cantavella-Jorda in using the Spanish economic data. Similarly, the convergence approach by Cunado and Garcia also reported convergence toward the African average. This study also corroborates the findings of Samimi and Sadeghi for developing countries. The effect of tourism revenues on economic growth was not noticeable in Turkey for the time period Similar conclusion was drawn by Zhao and Quan using Toda Yamamoto causality, impulse responses and co-integration test, in short term.
In their study, the role played by tourism consumption is negligible. This is in contradiction to the findings Oh which found no linkage in Korea. The modernization theory upon which this study is predicated and the tourism-led economic growth postulation TLGH appears to be true. Indeed, tourism attracts foreign investors which promotes technology and creates a developed market for the nation and its citizens to benefit from immensely.
The summary, conclusions and recommendations of the research findings are presented next, in the concluding section that follows. The paper finds that all the variables; revenue from tourism, public capital expenditure, exchange rate and inflation rate which has a long run effect on real GDP. They are in the short run, statistically insignificant. The agriculture, manufacturing oil and gas sector continues to play dominant roles in the economy.
The lack of short run impact calls for urgent joint actions by both the private and the government to devote more resources to the tourism and travel industries. It is also recommended that more investments in social and economic infrastructure including airports, proper hospitals, roads, air ports and sea ports should be undertaken in order to strengthen the tourism sector.
These should bring about employment opportunities, more revenue, improved standard of living, favourable and balance of payment amongst other growth inducing variables.
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Finally, in , with the additional support of Argentine rebels who opposed Rosas, the Colorados defeated Oribe. Thereafter, the Colorado Party regained power, which they retained until past the middle of the 20th century.
After the end of hostilities, a period of growth and expansion started for the city. The statue of Peace, La Paz, was erected on a column in Plaza Cagancha and the building of the Postal Service as well as the bridge of Paso Molino were inaugurated in In the same year, the Mercado del Puerto was inaugurated.
In , the first railway line of the company Ferrocarril Central del Uruguay was inaugurated connecting Bella Vista with the town of Las Piedras. Public water supply was established in It was renamed to Artigas Boulevard its current name in Other neighbourhoods that were founded were Belgrano and Belvedere in , Jacinto Vera in and Trouville in In the new port was constructed, and in , the Central Railway Station of Montevideo was inaugurated.
In the early 20th century, many Europeans particularly Spaniards and Italians but also thousands from Central Europe immigrated to the city. Among these changes were the right of divorce and women's right to vote.
The previously independent localities of the Villa del Cerro and La Teja were annexed to Montevideo, becoming two of its neighborhoods.
On Economic Problems, 33 4 , Neoclassical economic theory assumes that higher household consumption expenditures tend to lower economic growth by lowering investment because of reduced savings. In this case, the Jarque-Bera JB statistics of all the variables are greater than threshold of 2. New Pathways: Ashgate Publishing, Ltd. Tourism in Developing Countries. Proceedings of 11th International Academic Conference, Reykjavik.
Development as Freedom. International Journal of Tourism Research, 8 1 , pp. The tourists engender forward linkages in the consumption of hotel services, transportation, sporting, cultural expositions, construction and other tourism-related facilities. Tourism and economic growth in Latin American countries: a panel data approach.
Section 3 provides the source of data and the econometric model. The result of the F-Statistics test deployed to determine the over significance of the overall model confirms the statistical significance of the variables given that the calculated F- value 3. The Index of Economic Freedom, that is used as a proxy variable of economic freedom in this paper, documents the positive relationship between economic freedom and a variety of positive social and economic goals. Economic Development. The high differences between the maximum and minimum values of the series are indicative of significant variations in their trends. Durbarry , found that in addition to the sugar and manufacturing sectors, there is a significant positive impact of tourism on economic growth of a small island Mauritius for the period
Furthermore, a standard deviation positive shock of revenue from tourism cause a fall in the inflation rate from the second to the third year but then the trend shows the fluctuations below the line till the eighth year. Interestingly, the positive significant coefficient with the lagged dependent variables in both cases denotes the presence of important dynamics in the tourism-growth hypothesis. International Journal of Tourism Research, 8 1 , pp. International tourism specialisation of small countries. The common development platform of both the modernization and the dependency theories informs the tourism-led economic growth hypothesis TLGH.
The transmission mechanism by which economic development is driven by the tourism industry is captured in the tourism value chain Figure 1.
The result of the showed that as a factor of convergence, tourism was a significant factor in the enhancing the standard of living of the people in these countries. The ease of mitigating the negative impacts of tourism was however advanced by Yasong
There is also an inelastic and reversed relationship between revenue from tourism and real GDP. LNRT 2. Even though there are differences in obtained coefficients, these differences are not huge which implicates that tourism has been an important factor in explaining economic performance in all high-, middle- as well as low income countries.
New York: Alfred A.
Santana-Gallego, M. Does tourism influence economic growth? Journal of Tourism, Hospitality and Sports, 2, Asian Social Science, 5 5 , Ayeni, D.
Similar one way directional relationship subsists betweem the combined impact of all the variables and the revenue from tourism. The obtained results indicate a significant positive impact of tourism on economic growth. To avoid risking the crew in what he thought would be a losing battle, Captain Hans Langsdorff scuttled the ship on 17 December.