Diversification in the tourism sector and economic growth in Australia: a disaggregated analysis

In most countries inclusive of Australia, tourism policies do not only deal with how to diversify tourism markets but also how to diversify tourism activities. Efforts are often made to increase the inflows of tourists from different source markets and to improve arrivals for various tourism activities. However, the existing literature on the economic impact of the diversification of the sector has not dealt with the economic impact of diversification of tourism markets. This study aims to examine the economic impact of diversification of both tourism markets and tourism activities. Using a newly developed tourism diversification index, the focus of the study is on Australia for the period, 1976–2020. Utilizing a dynamic autoregressive lag simulation approach, the results suggest that diversification of tourism markets and activities generated positive economic growth in Australia in line with the notion of tourism-led growth hypothesis. Empirical results outline that a 1% increase in diversification of tourism markets and activities generated increases in the gross domestic product by 0.010% and 0.070%, respectively. One of the implications of the results is that policies to diversify tourism markets and activities will be beneficial to the economy in Australia