Prospects and Limits of Tourism-Led Growth: The International Evidence

Abstract

We investigate the relationship between tourism specialization and economic growth. We deviate from previous studies – which have reported mixed evidence – by allowing the relationship to take a nonlinear form. We find that tourism specialization is associated with higher rates of economic growth at relatively low levels of specialization but eventually diminishing returns set in and tourism’s contribution becomes minimal. The policy lesson is that there is promise for tourism-led growth in developing countries but other economic activities must also be developed in order to carry the economy forward once the potential of tourism-led growth has been exhausted.