Does financial development spur tourism growth? A dynamic time series analysis for the case of an SIDS

ABSTRACT

This paper examines the interactions between financial development and tourism growth for the case of Mauritius, a heavily tourism-dependent small island economy and one of the Africa’s best economic performers. Using dynamic regressions analysis over the period 1980–2018, namely, a Vector Error Correction Model which also accounts for endogeneity issues in tourism modelling, the results confirm that financial development is associated with tourism growth in the long run. The findings also show that economic growth, income of tourists as well as the availability of hotel rooms are important determinants of tourism. Moreover, it is observed that tourism development also leads to financial development thus confirming a bi-directional causality between these two variables. The bi-directional causality was also confirmed for the financial development–economic growth nexus as well as the tourism-growth nexus. Finally, evidence of the mediating role of economic development in the financial development–tourism development link is reported.

KEYWORDS:

• Tourism
• financial development
• VECM
• SIDS
• Mauritius

Disclosure statement

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

Notes

1 Other studies have analysed the link while principally analysing the tourism-financial development–growth link (see Kumar & Kumar, 2013 for the case of Fiji; Kumar (2014) for Vietnam; Shahbaz et al., 2017 for Malaysia; Ohlan, 2017 for India and Tsaurai, 2018 for Africa) or tourism–financial development and Co₂ Emission link (see Başarir & Çakir, 2015 for the case of Turkey and 4 EU and Işik et al., 2017 for Greece).

2 Mo et al. (1993), using survey methodology, find that tourists prefer to travel to countries that have the same infrastructures as in their home country.

3 http://tourismanalytics.com/mauritius.html.

4 The results pass all post-estimation diagnosis tests related to normality, serial correlation and heteroscedasticity.