Is financial development a prerequisite for the tourism-led growth phenomenon? World-wide evidence

Abstract

Purpose

This study aims to re-examine the growth effects of tourism and role of financial development in this process for countries across the globe for the period 1995–2018.

Design/methodology/approach

Considering the asymmetric effect of tourism on economic performance, the author makes use of a recently developed method of moments approach of quantile regression with fixed effects proposed by Machado and Silva (2019).

Findings

Model-based on tourist arrival shows a positive effect of tourism on economic performance. Yet, the effect is conditional and shows that relatively low-income economies are benefited more than high-income economies. The results also show that all types of tourism are beneficial for growth, yet business-related tourist arrivals are found to be comparatively more effective than other types of tourism. The evidence also shows that excess tourism does not dampen growth. Finally, the evidence suggests that financial development offers critical absorptive capacity, and tourism-led growth cannot be realised without it.

Originality/value

In contrast to previous studies, the approach effectively deals with non-normality, endogeneity and heterogeneity across issues. Furthermore, this study uniquely tests the role of financial development in channelling tourism-led development.

Citation

Sharma, C. (2024), "Is financial development a prerequisite for the tourism-led growth phenomenon? World-wide evidence", Journal of Financial Economic Policy, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFEP-05-2024-0120