Does tourism predict macroeconomic performance in Pacific Island countries?

•We examine whether tourism predicts macroeconomic variables.•Macroeconomic variables are proxied with 11 indicators.•A panel predictive regression model is applied.•A group of Pacific Island countries are considered.•We find that visitor arrivals consistently predict exports and money supply.

In this paper, we examine whether tourism predicts macroeconomic variables in Pacific Island countries (PICs), namely, Fiji, the Solomon Islands, PNG, Vanuatu, Samoa, and Tonga. We form seven panels of PICs - one full panel of six countries and six panels where, one-by-one, each country is excluded from the panel. We apply the Westerlund and Narayan (2012a) panel regression framework, where the null hypothesis is that visitor arrivals do not predict macroeconomic variables, which we proxy with 11 indicators, for panels of countries. We find that visitor arrivals consistently predict exports and money supply, and to a lesser extent, exchange rates and GDP.