The relationship between tourism and economic growth: a VAR analysis

Abstract

Tourism industry has been characterized as one of the most important engines of the economy. The purpose of this study is to test the relationship between tourism and economic development in 5 European countries with different economic background and compare the results. In order to test the aforementioned relationship a VAR model was constructed using real gdp as the dependent variable and real effective exchange rate - tourism arrivals as the independent ones. In order το enrich the research, uncertainty was also added to the model. The data used was quarterly, covering a 20-year time period (Q1:2000-Q4:2019) for five top tourist destinations (France, Germany, Greece, Italy and Spain). Granger Causality, Impulse Response Function and Variance Decomposition tests were performed, as well. The empirical results showed that in all the under study countries there is a linkage among tourism industry and economic development. The difference between them lies in the magnitude of the influence. Germany, Greece, Italy and Spain appear to be more vulnerable to shocks and changes as the global financial crisis or the pandemic covid-19. On the contrary, France appears to be less affected.