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Modelling of nonlinear asymmetric effects of changes in tourism on economic growth in an autonomous small-island economy

Brian Garrod Orcid Logo, António Almeida Orcid Logo, Luiz Machado Orcid Logo

European Journal of Tourism, Hospitality and Recreation, Volume: 13, Issue: 2, Pages: 154 - 172

Swansea University Author: Brian Garrod Orcid Logo

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Abstract

While a substantial body of empirical evidence exists supporting the tourism-led growth hypothesis, more limited evidence exists regarding the dynamics of the relationship between tourism and economic growth in the island context, with important questions remaining to be answered regarding the linea...

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Published in: European Journal of Tourism, Hospitality and Recreation
ISSN: 2182-4924
Published: Walter de Gruyter GmbH 2024
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa64654
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Abstract: While a substantial body of empirical evidence exists supporting the tourism-led growth hypothesis, more limited evidence exists regarding the dynamics of the relationship between tourism and economic growth in the island context, with important questions remaining to be answered regarding the linearity and symmetry of the relationship. Policymakers would benefit greatly from such knowledge as they attempt to harness inbound tourism as an engine of economic growth. This study contributes to bridging this important gap in knowledge by investigating the dynamics of the relationship between tourism and GDP in Madeira, a small-island autonomous region of Portugal. The analysis employs an asymmetric nonlinear autoregressive distributed lag model, using data from 1976 to 2019. The results confirm unidirectional causality between tourism and GDP, thus corroborating the tourism-led growth hypothesis. The relationship is also found to be asymmetrical, where the retarding effect of falling tourism receipts is significantly stronger than the stimulus effect associated with increasing tourism receipts. Significant non-linear effects are also found in each adjustment pathway. In terms of policymaking, while this study confirms that investing in tourism can be an effective way of promoting economic growth, efforts should also be made to diversify both the tourism sector and the wider economy to reduce exposure to downside risks.
Keywords: NARDL model; Granger causality tests; economic growth; time series; Madeira
College: Faculty of Humanities and Social Sciences
Issue: 2
Start Page: 154
End Page: 172