Contribution of Tourism to Economic Growth: A Panel Data Approach

Abstract

Tourism is one of the fastest growing sectors of the world economy. Tourism development may promote economic growth both directly and indirectly, first by stimulating the growth of other sectors and second by increasing domestic incomes and effective demand. The commonly accepted argument on the contribution of tourism in economic growth needs to be verified empirically as well. This paper empirically investigates whether the tourism led-growth hypothesis holds for the Mediterranean countries for the period of 1987-2002. A panel data approach Is utilized and coefficient estimates are obtained by using fixed effect and random effect models. As a result, the hypothesis that tourism Is conducive to economic growth is verified based on the regression results. On the whole, the empirical findings reveal that traditional factors (capital and labor) as well as a tourism related factor contribute to economic growth for the Mediterranean countries under focus.