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Modelling Tourism Development and Long-run Economic Growth in Aruba

Author

Listed:
  • Jorge Ridderstaat

    (Central Bank of Aruba, The Netherlands)

  • Robertico Croes

    (University of Central Florida, United States of America)

  • Peter Nijkamp

    (VU University Amsterdam)

Abstract

See also the article 'Tourism and Long-run Economic Growth in Aruba' in the International Journal of Tourism Research (2014). Volume 16, issue 5, pages 472-487. Tourism has over the past decades turned into a core activity for accelerated growth. The purpose of this study is to determine the role of tourism in the economy of Aruba. More specifically, this investigation attempts to answer the following questions: (1) is there is a long-run equilibrium relation between tourism development (TD) and economic growth in Aruba?; and (2) if so, what is the causality direction between TD and economic growth? This exercise involves applying an econometric methodology consisting of unit root testing, cointegration analysis, vector error correction modeling (VECM), and Granger causality testing. The results show there is one cointegrating relation between these two variables, while the VECM comprises both a short- and a long-run relation. The short-run dynamics of the model suggests a speed of correction of 0.25%, meaning that it would take about 10.5 years to correct for disturbances back to equilibrium. The long-run relation indicates that a 1% change in tourism revenues would lead to a 0.49% increase in real GDP in the long-run, ceteris paribus. Our findings have also empirically verified the presence of the Tourism-Led Growth Hypothesis (TLGH) in the case of Aruba. They show that tourism is in part an endogenous growth process, requiring a systematic allocation of resources (e.g., financial means, leadership, creativity, innovation, and entrepreneurship) to sustain its development for local and regional economies.

Suggested Citation

  • Jorge Ridderstaat & Robertico Croes & Peter Nijkamp, 2013. "Modelling Tourism Development and Long-run Economic Growth in Aruba," Tinbergen Institute Discussion Papers 13-145/VIII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20130145
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    File URL: https://papers.tinbergen.nl/13145.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kemal Soyer & Hale Ozgit & Husam Rjoub, 2020. "Applying an Evolutionary Growth Theory for Sustainable Economic Development: The Effect of International Students as Tourists," Sustainability, MDPI, vol. 12(1), pages 1-20, January.
    2. Benzarour, Choukri & satour, rachid, 2016. "السياحة والنمو الاقتصادي في الجزائر : الأدلة من التكامل المشترك و تحليل السببية [Tourism and economic growth in Algeria: Evidence of Cointegration and causal analysis]," MPRA Paper 78731, University Library of Munich, Germany.

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    More about this item

    Keywords

    endogenous growth; tourism development; economic growth; sustainability; Aruba; tourism receipts; gross domestic product; unit root; cointegration; VECM; Granger causality;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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