Does financial inclusion promote tourism development in advanced and emerging economies?

ABSTRACT

This research article is the first of its kind to consider the financial inclusion, which is constructed using the depth, access and efficiency of the financial institutions and markets, and various aspects of tourism development such as business tourism spending, direct tourism contribution, domestic tourism spending, total internal tourism expenses, leisure tourism spending and total tourism contribution. Given the growing importance of financial inclusion in the recent time, this article is designed to investigate the role of financial inclusion on various dimensions of tourism development across the panels of 24 advanced and 21 emerging economies around the world, using yearly data from 1995 to 2016. Given the presence of cross-sectional dependence in the data series, we employ Augmented Mean Group (AMG) estimator as it is a robust technique to handle this issue in the estimation. The evidences show that financial inclusion has a significant positive impact on various aspects of tourism development across the panels. The results also suggest that the impact is more in emerging economies than that of advanced economies. Hence, this article offers numerous policy and practical suggestions for sustainable tourism management.

KEYWORDS:

• Financial inclusion
• tourism development
• AMG estimator
• advanced-emerging economies

JEL CLASSIFICATION:

• G21
• L83
• N20
• Z32

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ WTTC 2019 https://www.wttc.org/https://www.wttc.org/economic-impact/. In 2018, tourism sector achieved a 3.9% growth compared to the global GDP growth of 3.2%. In the last five years, one out of five new jobs in the world is generated by tourism sector.

² Several empirical studies (e.g., Paramati, Alam, and Chen 2017; Alam and Paramati 2016) document that the tourism sector plays an important role in promoting economic growth and improving income distribution.

³ Tourism is defined as a social, cultural and economic phenomenon which entails the movement of people to countries or places outside their usual environment for personal or business/professional purposes. These people are called visitors (which may be either tourists or excursionists; residents or non-residents) and tourism has to do with their activities, some of which imply tourism expenditure (UNWTO, 2008).

⁴ The classification of the sample countries into advanced and emerging economies is based on the IMF classification. It is important to note that some of the advanced and emerging economies are excluded from the sample due to the unavailability of data.

⁵ Twenty-four advanced economies are: Australia, Belgium, Canada, Cyprus, Denmark, Estonia, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Malta, the Netherlands, Norway, Singapore, Spain, Switzerland, United Kingdom and United States, and 21 emerging market and middle – income economies, namely, Algeria, Argentina, Belarus, Brazil, China, Colombia, Dominican Republic, Hungary, India, Iran, Mexico, Morocco, Peru, the Philippines, Poland, Romania, Russian Federation, Thailand, Turkey, Ukraine and Uruguay.

⁶ The financial institution depth index is constructed using the data on bank credit to the private sector in percentage of GDP, pension fund assets to GDP, Mutual fund assets to GDP and Insurance premiums, life and non-life to GDP. The data were sourced from the IMF.