Tourism and economic growth: The role of institutional quality

Abstract

Tourism serves as a vital catalyst for economic growth. However, the impact of tourism development on economic advancement is often debated, and insufficient attention has been paid to the role of institutional quality in this relationship. This paper aims to evaluate the extent to which institutional quality influences the contribution of tourism development to economic growth. The study employs Ordinary Least Squares (OLS), System Generalized Method of Moments (GMM), and Quantile regression on a dataset spanning 1995 to 2019 for 182 countries, facilitating robust inferences. The results from both absolute and growth models indicate that tourism positively contributes to economic growth, with this effect being moderated by the level of institutional quality. Subsampling tests reveal that countries with high institutional quality, like those exhibiting open tourism policies, experience significantly greater economic benefits from tourism development. This suggests that institutional quality plays a significant role in enhancing the capacity of tourism development to foster economic growth. Beyond yielding insights for practitioners into economic growth, our research contributes to the theories on the tourism economy and institutional quality.