The stability of interaction channels between tourism and financial development in 10 top tourism destinations: Evidence from a Fourier Toda-Yamamoto estimator

Our article investigates the dynamic interlinkages between financial development, tourism development and economic growth in the top 10 tourism destination countries. The knowledge of which series has a causal power to predict tourism can inform policy making about which country needs marketing support and additional investment for its tourism growth. Moreover, results will throw light on which countries are assisted by their ex ante economic and financial development and can thus evolve into a tourism hub through the aid of the general economic development characterizing a country and/or a flourishing financial environment. Our study has employed a battery of cointegration and Granger-causality methods, which prove the robustness of our results. Specifically, we rely on the augmented mean group estimator and the novel Fourier Toda-Yamamoto (FTY)-based Granger-causality test, whose advantage lies in taking into account sharp and smooth structural breaks and resilient to cross-sectional dependence. The FTY reveals that the tourism-led growth hypothesis is confirmed for the United States, Italy, the United Kingdom, and Russia, while economic growth Granger-causes tourism development in the United States only. The financial development growth hypothesis in confirmed only for Spain and the United Kingdom, while economic growth Granger causes financial development in the United States, Italy, the United Kingdom, and Russia.