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Tourism development and economic growth–a nonlinear approach

  • Po, Wan-Chen
  • Huang, Bwo-Nung
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    We use cross sectional data (1995–2005 yearly averages) for 88 countries to investigate the nonlinear relationship between tourism development and economic growth when a threshold variable is used. The degree of tourism specialization (qi, defined as receipts from international tourism as a percentage of GDP) is used as the threshold variable. The results of the tests for nonlinearity indicate that the 88 countries’ data should be separated into three different groups or regimes to analyze the tourism-growth nexus. The results of the threshold regression show that when the qi is below 4.0488% (regime 1, 57 countries) or above 4.7337% (regime 3, 23 countries), there exists a significantly positive relationship between tourism growth and economic growth. However, when the qi is above 4.0488% and below 4.7337% (regime 2, 8 countries), we are unable to find evidence of such a significant relationship. Further in-depth analysis reveals that relatively low ratios of the value added of the service industry to GDP, and the forested area per country area are able to explain why we are unable to find a significant relationship between these two variables in regime 2’s countries.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437108004858
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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 387 (2008)
    Issue (Month): 22 ()
    Pages: 5535-5542

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    Handle: RePEc:eee:phsmap:v:387:y:2008:i:22:p:5535-5542
    Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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    1. Jacint Balaguer & Manuel Cantavella-Jorda, 2002. "Tourism as a long-run economic growth factor: the Spanish case," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 877-884.
    2. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
    3. Lokman Gunduz & Abdulnasser Hatemi-J, 2005. "Is the tourism-led growth hypothesis valid for Turkey?," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 499-504.
    4. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
    5. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
    6. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1.
    7. Hansen Bruce E., 1997. "Inference in TAR Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(1), pages 1-16, April.
    8. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    9. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
    10. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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