Tourism development and economic growth in the Mediterranean countries: evidence from panel Granger causality tests

Abstract

The aim of this study is to examine the relationship between tourism development and economic growth in the Mediterranean countries using the newly developed panel Granger causality tests for the 1995–2010 period. It is concluded that while there is bidirectional causal nexus between tourism development and economic growth for Portugal, unidirectional causal nexus from economic growth to tourism development is found for Spain, Italy, Tunisia, Cyprus, Croatia, Bulgaria and Greece. Therefore, the growth-led tourism hypothesis is supported in case of these seven countries. On the other hand, there is no causal relation for Malta and Egypt. The study finds evidence to support the tourism-led growth hypothesis for a group of panel in Mediterranean countries. The results of the overall study suggest that governments of Mediterranean countries should focus on economic policies to promote tourism as a potential source of economic growth.

Keywords:

• consumption
• cross-national case studies
• policy implementation

Acknowledgements

The author thanks the two anonymous referees for their valuable comments to the manuscript and their constructive suggestions. Any shortcomings that remain in the paper are solely his responsibility.

Notes

1. Since we have relatively short panels, we are likely to run out of degrees of freedom. In what follows, the empirical results are based on the more reliable case of K = 1. Nevertheless the simulation in Hurlin (2005, 2007) demonstrates that the size and power are reasonably good with small T.