How does international tourism revenue affect economic development? A perspective of human capital

Abstract

The international tourism industry plays a key role in global economic dynamics, yet the impact of international tourism revenue (ITR) on economic development (ED), particularly in relation to human capital (HC), is under-explored. This paper examines ITR’s effect on ED across 182 countries, highlighting HC’s moderating role. Our analysis, using linear and non-linear regression models, shows a positive effect of ITR on ED, confirmed by robustness checks. The partially linear functional-coefficient (PLFC) model reveals HC strengthens this effect, though its marginal impact decreases beyond a threshold. Heterogeneity analysis shows regional variations: Asia, Europe, and South America experience diminishing marginal effects, while Africa sees a continuous strengthening effect. North America and Oceania, with higher ED, show smaller marginal effects. And in developed nations, the marginal effect of ITR initially increases with HC but exhibits diminishing returns after reaching a certain threshold. Conversely, in developing countries, the positive marginal effect of ITR strengthens continuously with rising HC levels within the observed range, indicating substantial potential for leveraging tourism benefits through further human capital enhancement. Finally, a decision tree regression model predicts that, despite ITR's modest current effect on ED, its future potential remains significant with policy support and market growth.