Modelling of nonlinear asymmetric effects of changes in tourism on economic growth in an autonomous small-island economy

Garrod Brian (), Almeida António and Machado Luiz
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Garrod Brian: Swansea University, School of Management, Centre for Visitor Economy Research (CVER), Bay Campus, Fabian Way, Swansea, SA1 8EN, UK
Almeida António: University of Madeira & CiTUR Madeira, Department of Management and Economics, Faculty of Social Sciences, Campus Universitário da Penteada, Funchal, Portugal
Machado Luiz: University of Madeira, Department of Management and Economics, Faculty of Social Sciences, Campus Universitário da Penteada, Funchal, Portugal

European Journal of Tourism, Hospitality and Recreation, 2023, vol. 13, issue 2, 154-172

Abstract: While a substantial body of empirical evidence exists supporting the tourism-led growth hypothesis, more limited evidence exists regarding the dynamics of the relationship between tourism and economic growth in the island context, with important questions remaining to be answered regarding the linearity and symmetry of the relationship. Policymakers would benefit greatly from such knowledge as they attempt to harness inbound tourism as an engine of economic growth. This study contributes to bridging this important gap in knowledge by investigating the dynamics of the relationship between tourism and GDP in Madeira, a small-island autonomous region of Portugal. The analysis employs an asymmetric nonlinear autoregressive distributed lag model, using data from 1976 to 2019. The results confirm unidirectional causality between tourism and GDP, thus corroborating the tourism-led growth hypothesis. The relationship is also found to be asymmetrical, where the retarding effect of falling tourism receipts is significantly stronger than the stimulus effect associated with increasing tourism receipts. Significant non-linear effects are also found in each adjustment pathway. In terms of policymaking, while this study confirms that investing in tourism can be an effective way of promoting economic growth, efforts should also be made to diversify both the tourism sector and the wider economy to reduce exposure to downside risks.

Keywords: NARDL model; Granger causality tests; economic growth; time series; Madeira (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ejothr:v:13:y:2023:i:2:p:154-172:n:3

DOI: 10.2478/ejthr-2023-0013

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