The moderating role of digitalisation in the tourism-growth nexus: evidence from small island economies

An overwhelming amount of studies has investigated tourism as a driver of growth and there is a wide consensus on a positive relationship (tourism-led growth hypothesis). However, recent studies have also pointed out that the tourism-growth nexus may be conditional on certain elements like development level and infrastructure, education and human capital among others. Another factor which is believed to moderate the tourism-growth link is the level of digitalisation of the destination country and this research claims that countries with higher levels of digitalisation could benefit from increased tourism economic benefits. This study analyses the moderating role of such digitalisation in the tourism-growth link. The research uses annual panel data of 28 small island economies from 1990 to 2019 and applies panel autoregressive distributed lag (PARDL) methodology to analyse the long-run and short-run relationship among the variables. Results confirm the Tourism-led growth hypothesis in both the long run and short run, but more importantly point out that this relationship is moderated or is conditional by the level of digitalisation. In fact, the economic benefit of tourism is found to be higher with increased digitalisation level. Panel Granger Causality tests confirm the causal effect of digitalisation on tourism development as well as a bi-directional causality between tourism development and economic growth. The implications are clear that government and tourism businesses should accelerate the digitalisation process and concentrate on the concept of e-tourism to maximise its return.