Impact of International Tourism on Economic Growth: A Case of Selected Developed and Developing Countries with GMM estimation

This study examines the impact of the tourism industry on economic growth in 82 developed countries and developing countries for the period 1995 to 2016. The data on the growth rate of GDP per capita, number of international tourist arrivals and other explanatory variables are averaged over 4-year non-overlapping periods giving six observations per countries (albeit the last observation covers only a two-year period). The explanatory variables included the degree of development, physical investment rate, human capital rate, trade openness, government consumption expenditure, inflation rate, fluctuations in growth rate and political rights. The study employs Generalized Method of Moments (GMM) to estimate the effect of the tourism industry and other explanatory variables on economic growth. The analysis was conducted in three levels. First, it uses the number of international tourist arrivals as a proxy for tourism development. Second, it uses the logarithm of the variables without the number of international tourists in the model. Third, it uses both variables as proxies for tourism development. Results of the three models show that the inbound and outbound effects of tourism on economic growth are positive and significant. The coefficients of the other explanatory variables are also consistent with theoretical expectations.