International Tourism and Economic Growth in Transition Economies: Panel Causality Analysis with Structural Changes

Abstract

Given the importance of tourism in both economic growth and sustainable development, special attention, on the one hand, is paid to the causal dynamics between economic growth and tourism. Empirical studies with the aim of uncovering the causal link between economic growth and foreign tourism yielded conflicting results.       

Since the onset of transition at the end of the 1980s, a large number of countries in the Euro-Asia region have implemented a set of reforms intended to develop market based institutions involving almost all aspects of economic, social and democratic context. These transition countries had different initial conditions, and each of these nations employed different transition models; therefore, the process of the transition from planned economic system to market economy displays significant differences among these nations. Related to the differences in transition process, the important point is about the fact that international tourism is very vibrant, and their relationship with economic growth and also with economic freedom is extremely complex.

This study aims at investigating casual relationships among international tourism and economic growth utilizing a panel Granger causality framework for the post-socialist countries.  We propose a new panel causality framework which is capable of capturing structural changes in causality and does not require a prior knowledge regarding the number, dates, and form of structural breaks.