Do tourism, economic complexity and globalization affect economic growth? New empirical evidence in the context of TALC theory and accounting for cross sectional dependence

Thomas Panagiotou and Constantinos Katrakilidis

Economics and Business Letters, 2023, vol. 12, issue 3, 213-230

Abstract: This paper investigates the Tourism Led Growth (TLG) relationship, incorporating the law of economic returns and the Tourism Area Life Cycle (TALC) theory, along with economic complexity and globalization. To measure tourism accurately, principal components analysis is employed, integrating five tourism-specific variables for 127 countries spanning the period from 1995 to 2020. The empirical analysis utilizes advanced panel dynamic models that account for cross-sectional dependence, yielding robust evidence of a nonlinear TLG relationship. Our findings reveal an inverted U-shaped curve characterizing the TLG relationship in both the short and long run, highlighting distinct impacts of tourism specialization in each time frame. Specifically, higher levels of tourism specialization in the short run can lead to diminishing returns to scale in the long run. Furthermore, our analysis demonstrates that cultural globalization positively facilitates the TLG relationship, while economic complexity exerts a negative influence on the impact of tourism on economic growth.

Date: 2023
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