Can financial technology development change the causality between tourism and economic growth?

Po-Chin Wu, Hui-Yu Liu, Shiao-Yen Liu and Juei-Ming Hsiao

Current Issues in Tourism, 2021, vol. 24, issue 11, 1613-1630

Abstract: This paper constructs a panel smooth transition vector autoregressive model with a financial technology index (FTI) as a transition variable to explore the causality between inbound tourism and economic growth in 22 OECD countries. The model resolves the estimation problems of nonlinearity, heterogeneity, and endogeneity. The empirical results support that the causality is nonlinear, bidirectional, and time- and country-varying, depending on each country’s FTI in each period. Under most FTIs, the current inbound tourism growth will crowd out the economic growth in the next period. When the FTI is higher than the threshold (81.27), the current economic growth will harm inbound tourism growth in the next period. For OECD countries with an FTI below the threshold (81.27), tourism companies should actively expand their investment to share the tourism dividend driven from the economic growth in the previous period. For OECD countries with an FTI above the threshold, the governments should adopt appropriate policies to reduce the impact of economic growth on the tourism industry, and tourism companies should increase tourism investment during the periods of economic downturn.

Date: 2021
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DOI: 10.1080/13683500.2020.1828307

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