Assessing the dynamic economic impact of tourism for island economies

Using a panel data of 19 island economies for the years that span from 1990 to 2007, this study explores the potential contribution of tourism to economic growth and development within the conventional augmented Solow growth model. Since economic growth is argued to be essentially a dynamic phenomenon we employ GMM method to account for these issues. The results show that tourism significantly contributes to the economic growth of island economies. Moreover, the tourist-growth nexus is observed to be a dynamic phenomenon and granger causality analysis reveals a bi-causal relationship between tourist and growth. Comparative analysis with samples of developing and developed countries shows that tourism development on island economies may have comparatively higher growth effects.

Research highlights
► This study explores the dynamic contribution of tourism to economic growth for 19 islands.
► Tourism is shown to significantly contribute to the economic growth of island economies.
► The tourist-growth nexus is a dynamic phenomenon and a bi-causal relationship is validated.
► Tourism development of island economies has comparatively higher growth effects.