Modeling the tourism-financial development association in developing countries

ABSTRACT

This article explores the relationship between tourism demand and financial development using Fiji as a case study over the period 1980–2017. The ARDL bounds approach is used for estimation and causality is identified using the Toda-Yamamoto augmented VAR approach. We develop a financial development index using Principal Component Analysis that considers the size of the financial market, financial institution depth, and financial institution efficiency. The results show that tourism demand promotes financial development very strongly. The Granger causality results suggest that tourism demand Granger causes financial development. The findings imply that financial development is dependent on tourism demand in Fiji.

KEYWORDS:

• Financial development
• tourism demand
• principal component analysis
• Fiji
• Autoregressive distributed lags model

Disclosure statement

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