Does tourism development promote economic growth in transition countries? A panel data analysis

- Tourism development promotes economic growth in transition countries.
- Panel causality analysis accounts for dependency and heterogeneity across countries.
- Growth hypothesis holds for Cyprus, Latvia and Slovakia.
- Reverse relationships for the Czech Republic and Poland.
- Feedback hypothesis holds for Estonia and Hungary.

This study examines causal relationships between tourism spending and economic growth in 10 transition countries for the period 1988-2011. Panel causality analysis, which accounts for dependency and heterogeneity across countries, is used herein. Our empirical results support the evidence on the direction of causality, and are consistent with the neutrality hypothesis for 3 of these 10 transition countries (i.e. Bulgaria, Romania and Slovenia). The growth hypothesis holds for Cyprus, Latvia and Slovakia while reverse relationships were found for the Czech Republic and Poland. The feedback hypothesis also holds for Estonia and Hungary. Our empirical findings provide important policy implications for the 10 transition countries being studied.