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Long and Short-term Impact of Tourism on Growth in Small Developing States

Author

Listed:
  • Daniel Cunha
  • Mr. Rodrigo Garcia-Verdu
  • Pedro Juca Maciel

Abstract

We explore the relationship of recessions and tourism cycles on the economic performance of tourism-dependent Small Developing States (SDS). Using local projections regressions, we examine how these cycles affect potential output growth and its drivers—investment and employment—and estimate the short-run elasticity of tourism growth to economic activity. Our findings reveal that the long-term influence of recessions are less persistent in SDS than in larger emerging markets, as tourist-dependent economies experience faster recoveries from recessions. Moreover, we use Cabo Verde as a natural experiment to assess the short-term relation of tourism on growth and found that tourism's short-run elasticity to growth is around 0.4 over 12 months, with limited spillovers to non-tourism areas.

Suggested Citation

  • Daniel Cunha & Mr. Rodrigo Garcia-Verdu & Pedro Juca Maciel, 2025. "Long and Short-term Impact of Tourism on Growth in Small Developing States," IMF Working Papers 2025/103, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2025/103
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