Importing to feed international tourists: Growth implications for islands across the globe

Abstract

The expansion of inbound tourism among global islands, amidst relatively inadequate supporting tradable goods, potentially triggers high merchandise imports, resulting in an indeterminate impact on economic growth. Employing fixed and random effects estimation techniques on five-year-non-overlapping-averaged data, covering 1980 through 2019, this study, firstly, investigates the potential bi-causal relationship between inbound tourism and merchandise imports, in the case of 45 sovereign islands. The economic growth implication of a concurrent pursuit of tourism expansion and merchandise imports is also examined. The study further investigates how over-reliance on imported merchandise to feed international tourists, and over-specialisation in the tourism sector, affect the tourism-led-growth hypothesis in the case of these islands. Results from the study show that an increase in inbound tourism significantly leads to an increase in merchandise imports, and vice versa. Also, importing merchandises to sustain inbound tourism is significantly observed not to be detrimental to economic growth. However, results further reveal that over-reliance on imported merchandises to sustain inbound tourism, as well as over-specialisation in tourism with the help of imported merchandises, both exert significant detrimental net effects on economic growth. The findings hold policy guidelines for the pursuit of tourism-led and merchandise-import-led growth strategies among global islands.