Tourism Services Exports and Economic Growth in Barbados

Abstract

This article investigated the relationship between tourism and economic growth in Barbados from 1974–2004 using the techniques of multivariate cointegration, causality testing, and innovation accounting. Findings reveal the existence of a long-run relationship between tourist activity and economic growth. However, the nature of the directional relationship and the importance of the real exchange rate as an important determinant appear to be dependent on how output is specified and the statistical techniques employed. Still, our results provide justification for the Government of Barbados' objective of investing in its tourism industry as a means of stimulating growth over the long term. As there is an indication that forward and backward linkages are not as fully developed as they could be, and initiatives should also be put in place to foster stronger linkages between the tourism industry and other sectors, such as agriculture, food and beverage, and transportation. It is recommended, though, that policymakers do not over-rely on tourism for economic growth and that they pay greater attention to other industries given the tourism industry's capricious nature.

Keywords:

• tourism-led growth hypothesis
• Barbados multivariate cointegration
• causality
• innovation accounting

ACKNOWLEDGMENTS

The authors are very grateful to two anonymous referees and the editor for helpful comments on a previous version of this article.

Notes

¹Figures are sourced from the Information Centre of the Caribbean Tourism Organization available at: http://www.onecaribbean.org/home.

²Further facts and figures can be accessed at: http://unwto.org/facts/menu.html

³ Lutkepohl (1982) highlights the problems caused by omitted variables in bivariate tests, such as incorrect causal inferences.

⁴CARICOM stands for Caribbean Community. There are 15 full members: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines, Suriname, and Trinidad and Tobago. Associate members are Anguilla, Bermuda, British Virgin Islands, Cayman Islands, and Turks and Caicos Islands.