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Tourism and financial development in small states

Author

Listed:
  • Colin Cannonier

    (Belmont University, USA)

  • Monica Galloway Burke

    (Western Kentucky University, USA)

Abstract

Tourism expenditure in Caribbean countries represents the single largest inflow of foreign exchange and is associated with a significant amount of international capital flows. Yet, the relationship between tourism and financial development (FD) has received scant attention in the academic literature. This article focuses on whether tourism promotes FD in Caribbean economies. We do so by using newly constructed data on tourism flows to the region during the period 1980–2013. We find that tourist expenditure, on average, has a positive and significant impact on various measures of FD. At our most conservative estimates, we find that by increasing tourism expenditures per capita by about $1200 (USD), depth in the financial system improves by about 10–15%, while efficiency increases by about 34%. Our results are robust to instrumental variables, system generalized method of moments, and limited information maximum likelihood estimation techniques as well as to a variety of measures of FD. Such findings may have important policy implications related to facilitating growth and development through an increase in efficiency in the system of FD.

Suggested Citation

  • Colin Cannonier & Monica Galloway Burke, 2017. "Tourism and financial development in small states," Tourism Economics, , vol. 23(6), pages 1369-1377, September.
  • Handle: RePEc:sae:toueco:v:23:y:2017:i:6:p:1369-1377
    DOI: 10.1177/1354816617689870
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    File URL: https://journals.sagepub.com/doi/10.1177/1354816617689870
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    References listed on IDEAS

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    3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    4. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    5. Jinyong Hahn & Jerry Hausman & Guido Kuersteiner, 2004. "Estimation with weak instruments: Accuracy of higher-order bias and MSE approximations," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 272-306, June.
    6. Winston Moore & Roland Craigwell, 2002. "Market Power and Interest Rate Spreads in the Caribbean," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(4), pages 391-405.
    7. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    8. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    Cited by:

    1. Colin Cannonier & Monica Galloway Burke, 2019. "The economic growth impact of tourism in Small Island Developing States—evidence from the Caribbean," Tourism Economics, , vol. 25(1), pages 85-108, February.
    2. Muhammad Shahbaz & Ramzi Benkraiem & Anthony Miloudi & Aviral Kumar Tiwari, 2019. "Tourism-induced financial development in Malaysia: New evidence from the tourism development index," Tourism Economics, , vol. 25(5), pages 757-778, August.
    3. Michelle Rutty & Robert B. Richardson, 2019. "Tourism Research in Cuba: Gaps in Knowledge and Challenges for Sustainable Tourism," Sustainability, MDPI, Open Access Journal, vol. 11(12), pages 1-1, June.

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