Global Perspective on Tourism-Economic Growth Nexus: The Role of Tourism Market Diversification

ABSTRACT

The tourism industry is well-known as a powerful driver of the economic growth of destinations. However, socio-political and financial fluctuations in the countries of origin and destination make the tourism industry more volatile and less beneficial to economic growth. The tourism market diversification (TMD) strategy supports the stabilizing of the industry and spurs the economic growth of destinations via several channels, e.g. minimizing the risk of over-dependence on one market and stabilization the number of foreign tourists and tourism receipts. We analyzed the effects of the TMD strategy on the economic growth of 75 destinations over the period 1995-2018. By applying the dynamic system GMM estimator, we found that the TMD strategy accelerates the economic growth of destinations. Our results are robust regarding different samples of countries. The growth effect of the TMD on the low and lower-middle-income groups is significantly higher than on the high and upper-middle groups.

KEYWORDS:

• Tourism market diversification
• economic growth
• dynamic panel data
• system GMM estimator
• sustainable development goals

JEL CLASSIFICATION:

• Z30
• Z32
• Z33
• O47
• C23

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 To explore the relationship between tourism industry development and economic growth, empirical studies developed and examined four hypotheses including the tourism-led growth hypothesis, growth-led tourism hypothesis, feedback hypothesis, and neutral hypothesis. For more details about the hypotheses, see Sokhanvar, Çiftçioğlu, and Javid (2018).

2 Tourism fluctuation can be explained from two theoretical perspectives. The first set of theories e.g. Butler (1980)’s life cycle model, Cooper, Fletcher, Gilbert, & Wanhill (1993)’s Rostow based development model, and Plog’s (1974)’s model of allocentricity and psychocentricity, predict the rise and fall of the tourism industry by looking at factors within the countries of destination. The second group of studies explains tourism fluctuations by considering the instabilities of the political/economic/social environments of the source countries of foreign tourists. The dependency theory predicts tourism development in less developed destinations depends on external factors, such as economic growth, income level, and exchange rate fluctuations in developed source countries (Ağazade et al., 2021).

3 Barro-type model was developed by Barro (1991) and Barro and Sala-i-Martin (2003) and applied by various scholars e.g. Figini and Vici (2010) to examine the tourism–growth nexus.