Long and Short-term Impact of Tourism on Growth in Small Developing States

Daniel Cunha, Rodrigo Garcia-Verdu and Pedro Juca Maciel

No 2025/103, IMF Working Papers from International Monetary Fund

Abstract: We explore the relationship of recessions and tourism cycles on the economic performance of tourism-dependent Small Developing States (SDS). Using local projections regressions, we examine how these cycles affect potential output growth and its drivers—investment and employment—and estimate the short-run elasticity of tourism growth to economic activity. Our findings reveal that the long-term influence of recessions are less persistent in SDS than in larger emerging markets, as tourist-dependent economies experience faster recoveries from recessions. Moreover, we use Cabo Verde as a natural experiment to assess the short-term relation of tourism on growth and found that tourism's short-run elasticity to growth is around 0.4 over 12 months, with limited spillovers to non-tourism areas.

Keywords: Small Developing States; Tourism; Growth (search for similar items in EconPapers)
Pages: 63
Date: 2025-05-23
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