Tourism and economic growth: A review of international literature

The development of tourism has become one of the central issues taken up by many countries – in light of the potential benefits it has for the economy. Moreover, the causal link between tourism and economic growth has long been a subject of interest in many studies, with no unanimous agreement on the direction of causality between the two variables. The main arguments that have been put forward on the direction of causality are: Firstly, that tourism causes economic growth (tourism-led growth hypothesis); and secondly, that it is economic growth that leads to the growth of the tourism sector (growth-led tourism hypothesis). In this paper, we review some of the previous empirical studies that have been conducted, in order to examine the causality between tourism-sector development and economic growth in both developed and developing countries. These studies have used time series data analysis, panel/cross sectional data analysis as well as input/output analysis. Our empirical literature review shows that the causal relationship between tourism and economic growth differs from country to country; and it is dependent on the methodology used. On balance however, we find that the majority of the previous studies reviewed in this paper support the tourism-led growth hypothesis