Tourism recovery and the economic impact: A panel assessment

In anticipation of recovery in the tourism industry post COVID-19, this study examines the economic impact of tourism on economic growth and other macroeconomic variables in a panel of 46 countries. Using system-GMM estimation, I find that tourism has a statistically significant positive effect on economic growth. In the linear model, the positive effect on growth is 50 percent higher if tourism receipts relative to GDP is used as the tourism measure, instead of tourist arrivals per capita. When the non-linear specification is considered, it is found that tourism specialization at higher levels dampens the positive effect on growth. However, increased tourist receipts have a positive effect on growth, at all levels. Regardless of the measure of tourism, an increase in tourism augurs well for the services and agriculture value-added shares of GDP as well as the labour prospect in the service and industry sectors and among the vulnerable employed. Increase in the tourism receipts relative to GDP is expected to positively impact the net FDI inflows to GDP ratio. The results suggest that policy makers should be measured in their approach as they navigate their economies post-COVID-19 when the tourism industry is in the recovery phase.