Threshold effects on development of tourism and economic growth

[[abstract]]This paper uses 1996-2006 data on the top 10 countries in the 2008 Country Brand Index. The results show that there is a single threshold effect. Meanwhile, the coefficients at the upper and lower bands are positive and negative, respectively. When the exchange rate changes are smaller than the threshold value, the influence of inbound tourists on economic growth is negative. The continued tourism development reduces economic growth. However, when the exchange rate changes are higher than the threshold value, the coefficient is positive and significant. This means continued tourism development can greatly enhance economic growth. Existing literature supports the conclusion that tourism development can promote economic growth. However, this is only true if the exchange rate changes are no more negative than threshold value. If the currency continues to depreciate dramatically, the correlation between the two will disappear. The interactions between tourism development and economic growth are different under various ratio threshold values of exchange rate changes. This study shows that if the government pays attention to trends in exchange rates and implements appropriate policies, tourism can effectively boost economic growth; meanwhile, inflation suppresses economic growth. Tourism can potentially contribute to economic development hence it pays for governments to dedicate strategic resources to tourism in order to boost short-term economic growth.[[note]]NSC97-2410-H327-00