Economic Analysis and Policy 78 (2023) 1241–1253

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Economic Analysis and Policy

journal homepage: www.elsevier.com/locate/eap

Modelling economic policy issues

Tourism-led economic growth across the business cycle:

Evidence from Europe (1995–2021)
∗
Ferran Portella-Carbó a,b , , Jose Pérez-Montiel a , Oguzhan Ozcelebi c
a
Department of Applied Economics, University of the Balearic Islands, Palma, Cra. de Valldemossa, km 7.5. 07122, Palma, Spain
b
South African Research Chair in Industrial Development, University of Johannesburg, Johannesburg, South Africa
c
Department of Economics, Istanbul University, Beyazit Campus, Fatih- Istanbul, 34452, Turkey

article info a b s t r a c t

Article history: The significance of international tourism for economic (de)stabilization and recovery has
Received 21 December 2022 been recognized. However, it remains unclear whether and why tourism drives economic
Received in revised form 8 April 2023 growth in all phases of the business cycle. To investigate this relationship, we conducted
Accepted 15 May 2023
a causality-in-quantile study using data on tourism and GDP from 12 European countries
Available online 18 May 2023
between 1995 and 2021. Our analysis reveals that tourism’s influence on growth
JEL classification: recedes during both crises and booms. Following an economic downturn, short-term
Z32 mechanisms, such as direct and multiplier effects, contribute to stabilize and stimulate
Z38 growth, which then activate long-term mechanisms, such as reallocation effects, that
C14 shape the growth trend. Our findings indicate that macro-tourism policies and their
C22 timing play a role in managing business cycles. However, potential long-term challenges
Keywords: arise from tourism specialization, such as resource reallocation towards low-productivity
Tourism-led growth sectors and externalities. Therefore, policymakers must consider both the short- and
Macroeconomic stabilization long-term impacts of tourism when devising tourism-led recovery strategies.
Granger causality © 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights
Business cycles reserved.
Tourism

1. Introduction

Tourism is one of the most dynamic and labor-intensive sectors of our times. Once a marginal industry, it now
represents the world’s largest service in international trade and accounts for one in ten jobs globally (UN, 2020).
Today, its systemic importance in touristic regions and notable growth prospects underpin tourism’s role in economic
(de)stabilization and recovery.
This was most apparent in the COVID-19 pandemic. Faced with the collapse of international tourism, tourism-
dependent economies supported touristic activities (from airlines to museums)1 and aimed to recover tourism while
safeguarding public health to stabilize and revive their economies (IMF, 2021; OECD, 2020; UNCTAD, 2021; WB, 2022).
Certainly, where tourism rebounded the most in 2022, growth rates surprised on the upside –e.g., in Southern European
countries (IMF, 2022, Ch. 1). Tourism-led economic stabilization and recovery has also proven relevant in counterbalancing
the collapse of domestic growth drivers in some regions — as in Southern European countries after the Eurozone crisis

∗ Corresponding author at: Department of Applied Economics, University of the Balearic Islands, Palma, Cra. de Valldemossa, km 7.5. 07122, Palma,
Spain.
E-mail addresses: f.portella@uib.cat (F. Portella-Carbó), jose.perez@uib.es (J. Pérez-Montiel), ogozc@istanbul.edu.tr (O. Ozcelebi).
1 See, for example, the ‘‘UNWTO COVID-19 dashboard on country measures to support travel and tourism’’ https://www.unwto.org/tourism-
data/covid-19-measures-to-support-travel-tourism.

https://doi.org/10.1016/j.eap.2023.05.011
0313-5926/© 2023 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.
F. Portella-Carbó, J. Pérez-Montiel and O. Ozcelebi Economic Analysis and Policy 78 (2023) 1241–1253

(Bürgisser and Di Carlo, 2023). Thus, tourism matters for many regions’ long-run growth, but also increasingly for business
cycle management.
To address this macroeconomic role of tourism, we focus on the tourism-economic growth causal nexus across the
whole business cycle. The literature found that tourism normally causes long-run growth (Ahmad et al., 2020). However,
in some regions and stages of development causality runs in the opposite direction (economic-led tourism growth (ELTG)),
runs both ways (feedback hypothesis); or vanishes (neutrality hypothesis) (Brida et al., 2016; Li et al., 2018). Moreover, the
direction of causality may be time-varying (e.g. Balcilar et al., 2014; Enilov and Wang, 2022; Mérida and Golpe, 2016). For
example, Sharif et al. (2017) found that in the US economic growth drives tourism in the short-run, but tourism causes
long-run growth. Thus, research suggests that tourism normally drives economic growth and qualifies this result with
reference to geography, stage of development, policy shifts, short- and long-run periods, etc.
However, whether and why tourism influences economic activity in all phases of the business cycle remains uncertain.
For example, in Greece GDP plummeted from 2008 to 2016 despite inbound tourism reached all-time records. In Spain, a
tourism-led growth strategy contributed to the economic recovery, but only after the sovereign debt crisis was resolved
(Bürgisser and Di Carlo, 2023). Therefore, by clarifying the causal link between tourism and GDP across the whole cycle we
aim at informing tourism-led stabilization and recovery strategies and contributing to the tourism-led growth literature.
In reviewing the economic literature, we argue that tourism generally stimulates economic activity, while growth
allows for and induces further tourism. Nonetheless, we contend that the macroeconomic impacts of tourism (direct
and multiplier effects, economies of scale, the relaxation of foreign exchange constraints, terms of trade improvements,
reallocation effects from high- to low-productivity-growth sectors, externalities, etc.) recede in extreme economic
conditions, when macroeconomic dynamics mainly respond to the critical variables (such in a banking crisis, a housing
bubble and a public health crisis). Thus, our argument leads us to predict that tourism causes growth across the whole
economic cycle except in economic crises and booms.
To empirically examine this conjecture, we apply a causal analysis that explicitly accounts for economic and touristic
‘regimes’; that is, it distinguishes between recessionary, normal and booming economic and touristic periods. Such regimes
capture depressions and expansions as fluctuations around a long-term trend (see Ang and Timmermann, 2012). Thus, we
empirically study the tourism-economic growth (T-G) dynamic relationship in economic crises, ‘normal’ (trend) conditions
and economic booms. In particular, we apply the nonparametric Granger causality-in-quantile method (Balcilar et al.,
2017) because it is data-driven and considers the whole joint distribution of the variables, which can be interpreted as a
description of their cycle. Thus, we contribute to the literature by incorporating non-parametric techniques and allowing
‘regimes’ to mediate the T-G nexus.2
We focus on 12 European countries from 1995: Q1 to 2021: Q4. This is an interesting sample because: (i) it includes
similarly developed countries, but with very different tourism weights (from 1.1% of GDP in Luxembourg to more than
12% in Spain), and (ii) Southern countries have relied on tourism-led economic stabilization and recovery, while Northern
countries have favored other export-led growth strategies (Bürgisser and Di Carlo, 2023).
We found that tourism and economic growth support each other in regular economic conditions only. We conclude that
while tourism can shape economic recoveries and trend-growth, its impact on economic activity fades during economic
crisis and booms. Tourism-led recovery strategies – once the causes of the crisis are tackled – can be pragmatic answers
to issues such as low domestic demand and foreign reserves. Nonetheless, such a policy must weight in the implications
for long-run macro-dynamics, which tourism could even worsen.
The next section reviews the mechanisms that connect tourism and economic activity, and advances our working
hypotheses. Section 3 explains the empirical methodology and sample, and results are discussed next. Finally, we conclude
and derive policy implications.

2. Theoretical background: tourism-growth links

This section reviews the mechanisms underpinning the four tourism-growth hypotheses and stresses their variability
across the business cycle.

2.1. Tourism-led economic growth

The modern TLGH springs from the contribution of Balaguer and Cantavella-Jordá (2002) (Comerio and Strozzi, 2019).
It is an export-led growth theory: tourism causes growth by increasing efficiency (through competition à la Krueger, 1980
and economies of scale à la Helpman and Krugman, 1985) and foreign trade earnings (e.g. Narayan et al., 2021), which
allows financing a faster rate of capital accumulation (Hazari and Sgro, 1995; Nowak et al., 2007). In addition, terms of
trade may improve with tourism specialization (Sahli and Carey, 2013, pp. 623–627).
In contrast, some arguments note that tourism may indirectly reduce aggregate demand and supply. On the demand
side, tourism may shift resources from more- to less-mechanized sectors, hence lower investment (Chao et al., 2006).
On the supply side, production may relocate from high- to low-productivity-growth sectors (Copeland, 1991), reduce

2 In the spirit of Brida et al. (2020), who use ‘regimes’ to describe the dynamics of economic and tourism growth, and Shahzad et al. (2017) and
Lolos et al. (2023), who estimate correlations between quantiles of output and tourism growth.

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F. Portella-Carbó, J. Pérez-Montiel and O. Ozcelebi Economic Analysis and Policy 78 (2023) 1241–1253

agglomeration economies in manufacturing (Faber and Gaubert, 2019), and promote less ‘complex’ activities (see Goretti
et al., 2021, pp. 89–98; Mishra et al., 2020)— which correlate with lower economic growth (Hausmann et al., 2014).
Similarly, tourism specialization may hinder education and innovation (e.g. Capó et al., 2007) and generate negative
externalities such as environmental degradation that limit growth (Lozano et al., 2008; Tisdell, 1987).
In sum, tourism and trend-growth are linked by long-run mechanisms whose sign depends on the specific sectors and
activities tourism promotes and hinders. In stark terms, producing flights instead of just souvenirs matters for long-run
growth.
In the shorter-run, tourism expenditure supports (i) direct producers, (ii) suppliers (via Leontief multipliers), (iii)
residents’ consumption (via Keynesian multipliers), (iv) the relaxation of foreign exchange constraints on growth, and
(v) government expenditure by rising taxes.3 ‘Leakages’, however, weaken these direct and indirect effects. For example,
tourism incomes can ‘leak’ in the form of imports, interests, dividends, and savings. Therefore, in the short-run tourism
generates short-lived economic activity if it is import-dependent and incomes are merely saved or sent abroad.
All the mentioned mechanisms are affected by business cycles. For example, capital accumulation, terms of trade and
‘leakages’ such as imports (Bussière et al., 2013) are pro-cyclical. More importantly, tourism’s effects on growth recede
in extreme events (for evidence, see Liu et al., 2022). In economic booms, additional tourism may not bring growth, but
lead to inflation, bottlenecks and crowding-out effects. In economic crises, macroeconomic dynamics largely depend on
resolving the critical issue. For example, in the COVID-19 pandemic economic activity was subject to the public health
emergency. In the Eurozone crisis, recovery in Southern countries ultimately depended on the ECB terminating with
speculative attacks and radical uncertainty (Baldwin and Giavazzi, 2015). Nonetheless, tourism to contribute to kick-start
growth once the critical causes of the crisis are resolved — as in Southern European countries after the Eurozone crisis
(Bürgisser and Di Carlo, 2023).
Therefore, we expect to find empirical support for tourism-led economic growth, except in extreme quantiles of the
conditional distribution of growth (i.e. in crises and booms).

2.2. Economic-led tourism growth

Conversely, sometimes economic growth precedes inbound tourism. Certainly, a minimum accumulation of infras-
tructure, skills and amenities is a prerequisite for hosting significant tourist inflows. Moreover, tourists tend to value
quality health systems (Konstantakopoulou, 2022) and sophisticated cultural and recreational activities (Lee et al., 2022).
The multiplicity of channels by which economic size affects tourism demand has been formalized in gravity models for
tourism, which fit the data well (Rosselló Nadal and Santana Gallego, 2022). It is thus reasonable to expect that economic
growth allows and attracts tourism.
However, this need not always be the case. For example, tourism declines when growth degrades the environment
(Robaina et al., 2020; Tisdell, 1987), especially in nature-based touristic regions (Kularatne et al., 2021). Thus, economic-led
tourism growth may be expected in general, but not assumed.
Again, these linkages vary across the business cycle. For example, because tourism import demand is asymmetrically
sensible to economic upswings and downswings and domestic cycles are correlated with international cycles (Smeral,
2017). Moreover, the causal links between tourism and growth may fade in extreme conditions. For example, the political
turmoil and social unrest in an economic crisis frightens away tourists (e.g. Groizard et al., 2022).

2.3. Feedback and neutrality hypothesis

All the above suggests that tourism normally stimulates economic activity, which in turn allows for and induces tourism
inflows. In stark contrast, our theoretical analysis also suggests that during crises and booms the neutrality hypothesis
may be statistically validated: under these situations, macro-dynamics are not guided by tourism, but by events such a
banking crisis and housing bubbles.
In sum, while theory envisions four T-G hypotheses, their actual, empirical relevance depends on the business cycle
phase. We conjecture that the feedback or the TLG hypotheses hold across the whole cycle except in extreme situations,
when we expect to validate the neutrality hypothesis. We thus expect tourism to generally shape recoveries and long-run
trends, but not directly affect economic activity during crises and booms.

3. Econometric methods and data

To empirically study the tourism-growth nexus, we use a nonparametric quantile causality approach. This test
considers all quantiles of the conditional distribution (not just the center of it); thus, it allows examining the relationship
between the variables across the whole business cycle. In this Section, we explain in detail the econometric method and
the data.

3 All of this is consistent with Sraffian and New Kaleckian growth models (see Pérez-Montiel et al., 2021).

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F. Portella-Carbó, J. Pérez-Montiel and O. Ozcelebi Economic Analysis and Policy 78 (2023) 1241–1253

Fig. 1. Direct contribution of tourism to total gross value added (GVA) in some European states. Notes: We report the latest data available at UNWTO.
Data refer to 2019 for the Netherlands; 2017 for Greece, Italy, and the United Kingdom; 2016 for Luxembourg; 2015 for Germany; and 2018 for
the rest. Data correspond to ‘‘Tourism GVA (direct) as a percentage of total GVA’’ for Finland, Germany, Greece, Italy, Netherlands, and the United
Kingdom.
Source: UNWTO (2022).

3.1. Data

We use quarterly Gross Domestic Product (GDP) at market prices measured in chain linked volumes (index 2015
= 100) as a proxy for economic activity. As a proxy for inbound tourism, we use the monthly number of arrivals of
foreign residents at tourist accommodation establishments (which we denote as TA: tourist arrivals). Monthly data were
aggregated into quarterly data, which run from 1995: Q1 to 2021: Q4. All these data are publicly available at Eurostat.4
We compose our sample with the twelve European countries for which data were available, namely: Austria, Belgium,
Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Spain and the UK. Thus, in line with our
objective, we examined countries with comparable levels of development, but with significantly different tourism
trajectories and weights (see Fig. 1).
First, we explored descriptive statistics, the Jarque–Bera (JB) and unit root tests of the variables of interest (Table 1).
The JB test indicated that at least one variable, thought typically both, does not follow a normal distribution. This, together
with the values of skewness and kurtosis, shows that the variables tend to have fat-tailed distributions, which stresses
the importance of examining their interconnection across the whole conditional distribution.

3.2. Methodology: Nonparametric Granger causality-in-quantile test

Quantile Granger causality tests examine the entire conditional distribution. Among them, the nonparametric tests of
Jeong et al. (2012) also deal with nonlinear causality, outliers, structural shifts and regime changes in the series. These
are appealing qualities for our study because the tourism-growth nexus is rarely linear (Aslan, 2015; Suresh and Tiwari,
2018). Therefore, we applied these tests – following also Balcilar et al.’s (2017) extensions – to investigate if tourism can
predict growth across quantiles of the conditional distribution.
In the following, we summarize the main features of these methods. A variable (xt ) Granger causes another variable
(yt ) in the τ th quantile if
Qτ yt ⏐yt −1 , . . . , yt −p ; xt −1 , . . . , xt −p ̸ = Qτ yt ⏐yt −1 , . . . , yt −p ,
( ⏐ ) ( ⏐ )

where Qτ((yt |· ) is the τ) th quantile (of yt depending ) on t, and p denotes the lag-order. Jeong et al. (2012) defined:
Yt −1 ≡ yt −1 , . . . , yt −p , Wt −1 ≡ xt −1 , . . . , xt −p , Vt ≡ (Wt , Yt ), the conditional distribution function of yt given
Yt −1 (Fyt |Yt −1 (yt , Yt −1 )), and of yt given Vt −1 (Fyt |Vt −1 (yt , Vt −1 )). They assumed that Fyt |Vt −1 (yt , Vt −1 ) is absolutely
continuous in yt for almost all Vt −1 . They also defined Qτ (Vt −1 ) ≡ Qτ (yt |Vt −1 ) and Qτ (Yt −1 ) ≡ Qτ (yt |Yt −1 ), so that
Fyt |Vt −1 {Qτ (Vt −1 ) |Vt −1 } = τ with probability one. Then, the null hypothesis of no Granger causality running from xt to
yt in the τ th quantile is
{ }
H0 = P Fyt |Vt −1 {Qτ (Yt −1 ) |Vt −1 } = τ = 1, (1)

4 In particular, the monthly number of arrivals of foreign residents at tourist accommodation establishments were downloaded from https:
//appsso.eurostat.ec.europa.eu/nui/show.do?dataset=tour_occ_arm&lang=en; and quarterly GDP at market prices measured in chain linked volumes
(base 2015) were downloaded from https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=namq_10_gdp&lang=en For France, to obtain a longer
time series, tourist accommodation establishments were restricted to ‘‘Hotels and similar accommodation’’.

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F. Portella-Carbó, J. Pérez-Montiel and O. Ozcelebi Economic Analysis and Policy 78 (2023) 1241–1253

Table 1
Summary statistics, Jarque–Bera and unit root tests of GDP and tourist arrivals.
GDP Mean Max. Min. S.D. Skewness Kurtosis JB Prob. ADF PP
Austria 91.60 111.70 66.93 11.43 −0.33 2.11 0.06 0.62 0.00
Belgium 89.82 114.10 66.93 11.94 −0.17 2.09 0.12 0.76 0.00
Finland 94.07 117.06 60.81 13.28 −0.77 2.71 0.00 0.35 0.00
France 92.26 110.62 70.48 10.04 −0.44 2.29 0.06 0.56 0.00
Germany 91.90 108.24 75.21 9.36 0.10 1.93 0.07 0.02 0.00
Greece 108.20 140.95 78.93 15.04 0.45 2.36 0.06 0.34 0.27
Italy 101.32 110.78 85.70 4.93 −0.67 3.45 0.01 0.39 0.00
Luxembourg 84.78 122.15 49.48 19.37 −0.16 2.02 0.09 0.19 0.00
Netherlands 92.64 115.93 66.27 11.75 −0.42 2.51 0.12 0.17 0.00
Portugal 99.31 113.20 77.74 7.75 −0.95 3.66 0.00 0.06 0.11
Spain 92.97 113.75 63.45 12.82 −0.71 2.49 0.01 0.71 0.00
UK 87.78 110.28 62.66 11.97 −0.33 2.22 0.11 0.38 0.00
Tour. arrivals Mean Max. Min. S.D. Skewness Kurtosis JB Prob. ADF PP
Austria 4 620 308 9 318 458 137 636 1 746 277 0.26 3.38 0.39 0.10 0.00
Belgium 1 706 241 2 736 884 138 739 489 221 −0.65 4.06 0.00 0.01 0.00
Finland 560 567 1 053 139 29 321 229 608 −0.01 2.52 0.59 0.02 0.00
France 8 052 114 14 080 510 3 937 248 2 915 994 0.47 1.90 0.01 0.66 0.00
Germany 6 020 449 12 927 014 586 470 2 623 574 0.53 3.04 0.08 0.33 0.00
Greece 2 874 198 13 395 696 85 432 2 786 281 1.56 5.40 0.00 1.00 0.00
Italy 10 471 203 25 670 959 406 961 5 677 242 0.75 2.91 0.01 0.39 0.00
Luxembourg 219 606 370 235 47 587 79 628 0.15 1.90 0.05 0.93 0.00
Netherlands 2 793 528 6 059 922 266 946 1 153 006 0.62 3.55 0.02 0.44 0.00
Portugal 1 868 766 5 663 044 69 380 1 108 698 1.34 4.80 0.00 0.00 0.00
Spain 10 105 148 24 039 108 169 283 5 349 173 0.65 2.96 0.02 0.61 0.00
UK 5 311 653 9 744 674 2 603 000 1 820 493 0.54 2.37 0.04 0.28 0.00

Note: ADF stands for Augmented Dickey–Fuller unit-root test, and PP denotes the Philips–Perron the unit-root test.

whereas the hypothesis that xt Granger causes yt in the τ th quantile is

{ }
H1 = P Fyt |Vt −1 {Qτ (Yt −1 ) |Vt −1 } = τ < 1. (2)

Jeong et al. (2012, p. 865) specified the following distance function:

[{ }2 ]
J =E Fyt |Vt −1 {Qτ (Yt −1 ) |Vt −1 } − τ fV (Vt −1 ) ,

where fV (Vt −1 ) is the marginal density function of Vt −1 . Therefore, J ≥ 0 if and only if H0 (Eq. (1)) is true, whereas J > 0
if H1 (Eq. (2)) is true. Jeong et al. (2012, p. 866) proposed the following test statistic for J:
T T ( )
1 ∑ ∑ Vt −1 − Vs−1
ĴT = K ε̂t ε̂s ,
T (T − 1) h2p h
t =p+1 s=p+1,s̸ =t

where K (·) denotes the kernel function with bandwidth h, T indicates the sample size, p denotes the lang length and ε̂t
is the estimate of the unknown regression error. The latter was estimated as
{ }
ε̂t = 1 yt ≤ Q̂τ (Yt −1 ) − τ ,
where 1 {·} is an indicator function.
To apply the causality tests, we followed the approach of Balcilar et al. (2017). First, we determined the lag order p using
the Schwarz information criterion under a VAR model. Then, we selected the bandwidth h using the least squares cross-
validation method and used Gaussian-type kernels for K(·). However, before conducting the tests, we had to determine
the order of integration of the variables because the tests require stationary time series. In particular, because the BDS
test of Broock et al. (1996) indicated that the series are nonlinear, we used the quantile autoregressive (QAR) unit root
tests of Koenker and Xiao (2004).5

4. Results and discussion

The unit root test showed that inbound tourism and GDP are stationary in most quantiles of their conditional
distribution, with the exception of Greece and Portugal (see Tables 2 and 3). Therefore, for the causal analysis we took
the variables in levels for all countries except Greece and Portugal, for which we used the variables in first differences.6

5 The BDS test indicates that the variables are nonlinear also in first differences. Details are available upon request.
6 The quantile unit root test also indicates that the series are stationary in first differences. Results are available upon request.

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F. Portella-Carbó, J. Pérez-Montiel and O. Ozcelebi Economic Analysis and Policy 78 (2023) 1241–1253

Table 2
Results of the quantile autoregressive unit root analysis of the GDP series.
τ Austria Belgium Finland France
t-statistic Critical value t-statistic Critical value t-statistic Critical value t-statistic Critical value
0.10 −3.63 −3.32 −4.03 −3.15 −4.56 −3.03 −0.33 −2.62
0.15 −4.37 −3.07 −4.07 −3.41 −4.17 −3.05 −0.87 −3.00
0.20 −3.81 −3.10 −6.99 −3.41 −4.50 −3.11 −2.40 −2.97
0.25 −5.69 −3.30 −9.36 −3.41 −4.84 −3.23 −3.37 −2.90
0.30 −6.75 −3.29 −10.10 −3.41 −4.28 −3.13 −4.49 −2.82
0.35 −5.80 −3.04 −9.99 −3.41 −4.45 −3.19 −5.93 −2.98
0.40 −5.31 −3.11 −9.84 −3.41 −3.89 −3.28 −5.09 −2.99
0.45 −5.36 −3.04 −9.52 −3.41 −4.26 −3.20 −5.39 −3.07
0.50 −5.09 −3.04 −10.15 −3.41 −4.29 −3.15 −5.53 −3.14
0.55 −5.09 −2.96 −10.50 −3.41 −4.06 −3.13 −5.30 −3.10
0.60 −4.95 −3.05 −10.62 −3.41 −3.60 −3.02 −4.52 −3.03
0.65 −4.46 −2.99 −11.25 −3.41 −4.04 −2.89 −5.49 −3.06
0.70 −4.79 −2.86 −9.74 −3.41 −1.96 −3.00 −5.47 −3.02
0.75 −3.87 −2.76 −9.21 −3.41 −1.76 −2.88 −5.17 −2.86
0.80 −4.80 −2.88 −8.38 −3.32 −1.77 −2.82 −5.12 −2.92
0.85 −4.45 −2.78 −7.80 −3.14 −1.36 −2.67 −5.15 −2.82
0.90 −4.18 −2.85 −6.86 −3.01 −1.22 −2.32 −4.47 −2.56
τ Germany Greece Italy Luxembourg
t-statistic Critical value t-statistic Critical value t-statistic Critical value t-statistic Critical value
0.10 −1.28 −2.85 −0.91 −2.57 −1.67 −2.83 −3.19 −2.81
0.15 −2.08 −3.28 −0.61 −2.43 −1.86 −2.94 −4.50 −2.88
0.20 −3.21 −3.31 −1.83 −2.31 −3.46 −2.97 −4.73 −3.17
0.25 −3.86 −3.13 −2.21 −2.32 −4.68 −3.18 −5.81 −3.18
0.30 −4.00 −3.07 −1.94 −2.48 −4.84 −3.12 −5.11 −3.15
0.35 −3.72 −2.85 −1.30 −2.35 −4.45 −3.16 −5.18 −3.21
0.40 −4.12 −2.97 −1.38 −2.31 −5.16 −3.01 −4.67 −3.16
0.45 −4.02 −2.86 −2.15 −2.34 −4.73 −3.18 −4.14 −3.18
0.50 −5.02 −2.92 −2.11 −2.35 −5.08 −3.19 −4.63 −3.30
0.55 −5.23 −2.81 −2.58 −2.66 −4.69 −3.05 −4.11 −3.25
0.60 −5.32 −2.82 −2.86 −2.90 −4.99 −3.15 −4.04 −3.28
0.65 −5.48 −2.65 −2.17 −2.72 −4.89 −3.10 −3.07 −3.13
0.70 −5.71 −2.69 −2.81 −2.80 −4.26 −3.10 −2.57 −3.12
0.75 −6.09 −2.72 −2.23 −2.68 −4.51 −3.20 −2.42 −3.05
0.80 −5.25 −2.60 −1.79 −2.39 −3.25 −3.10 −2.97 −3.11
0.85 −3.16 −2.40 −1.58 −2.44 −2.64 −2.90 −1.35 −3.01
0.90 −3.67 −2.38 −1.54 −2.31 −3.54 −2.76 −0.90 −2.98
τ Netherlands Portugal Spain UK
t-statistic Critical value t-statistic Critical value t-statistic Critical value t-statistic Critical value
0.10 −2.45 −2.58 −0.44 −2.64 −1.06 −2.93 −0.98 −2.48
0.15 −2.96 −2.87 −0.69 −2.74 −2.28 −2.92 −1.94 −2.71
0.20 −2.03 −2.98 −0.83 −2.81 −3.09 −2.90 −2.73 −2.89
0.25 −1.96 −3.01 −1.63 −2.62 −3.18 −2.92 −2.96 −2.91
0.30 −2.93 −3.10 −1.47 −2.52 −3.26 −2.91 −3.29 −2.99
0.35 −3.96 −3.20 −1.43 −2.47 −4.22 −3.00 −3.63 −2.87
0.40 −4.26 −3.09 −1.59 −2.46 −4.25 −2.85 −3.59 −2.69
0.45 −4.21 −3.18 −1.74 −2.53 −4.02 −2.92 −3.25 −2.61
0.50 −3.95 −3.12 −1.85 −2.82 −4.11 −2.94 −2.93 −2.62
0.55 −4.26 −3.30 −1.69 −2.81 −4.07 −2.79 −3.00 −2.57
0.60 −3.96 −3.32 −1.58 −2.78 −4.17 −2.88 −2.74 −2.76
0.65 −3.53 −3.32 −1.72 −2.80 −2.34 −2.84 −2.10 −2.72
0.70 −4.18 −3.30 −2.52 −2.83 −1.77 −3.04 −2.60 −2.66
0.75 −4.44 −3.18 −2.42 −2.86 −1.20 −2.89 −3.41 −2.53
0.80 −3.96 −3.12 −2.03 −2.75 −0.98 −2.78 −3.22 −2.54
0.85 −4.48 −3.04 −1.16 −2.58 −0.71 −2.48 −2.65 −2.56
0.90 −3.56 −3.05 −1.44 −2.74 −0.95 −2.55 −2.20 −2.77

Fig. 2 summarizes the results of the Granger causality tests across quantiles (for the specific test statistics and critical
values, see the Appendix). The second row illustrates whether inbound tourism leads to GDP (T → G), whereas the third
row indicates the reverse channel (G → T). A check mark signals the presence of causality, while a blank indicates that the
no-causality hypothesis cannot be rejected at the 5% significance level. The first row summarizes these results in terms of
the tourism-growth hypotheses, where T stands for TLG (tourism-led growth), E for EGLT (economic growth-led tourism),
N for neutrality, and F for feedback.
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Table 3
Results of the quantile autoregressive unit root analysis of the TA series.
τ Austria Belgium Finland France
t-statistic Critical values t-statistic Critical values t-statistic Critical values t-statistic Critical values
0.10 −2.38 −3.41 −1.74 −3.17 −3.04 −3.41 −16.57 −3.27
0.15 −4.84 −3.32 −2.83 −3.08 −3.34 −3.41 −18.30 −3.29
0.20 −6.90 −3.41 −3.37 −3.02 −6.57 −3.41 −18.18 −3.41
0.25 −8.45 −3.41 −5.88 −2.79 −6.82 −3.41 −16.43 −3.31
0.30 −11.25 −3.41 −3.68 −2.59 −7.09 −3.41 −9.15 −3.13
0.35 −19.04 −3.41 −3.41 −2.44 −7.91 −3.41 −8.27 −3.05
0.40 −17.87 −3.39 −3.64 −2.48 −8.92 −3.26 −7.15 −2.93
0.45 −20.06 −3.29 −3.90 −2.31 −10.37 −3.17 −5.67 −2.63
0.50 −18.21 −3.22 −4.89 −2.55 −9.16 −3.00 −6.21 −2.88
0.55 −19.70 −3.17 −4.60 −2.42 −6.16 −2.87 −6.17 −2.82
0.60 −18.47 −3.09 −5.33 −2.59 −5.65 −2.85 −5.69 −2.96
0.65 −16.92 −2.88 −5.65 −2.55 −4.70 −2.76 −4.16 −2.73
0.70 −15.82 −2.54 −7.89 −2.51 −1.97 −2.36 −2.40 −2.94
0.75 −13.70 −2.59 −14.23 −2.45 −2.09 −2.31 −2.27 −3.13
0.80 −10.91 −2.55 −13.84 −2.37 0.39 −2.31 −3.55 −3.08
0.85 −10.15 −2.47 −15.26 −2.35 0.82 −2.31 −6.82 −3.19
0.90 −9.64 −2.44 −16.03 −2.31 3.09 −2.31 −6.01 −2.88
τ Germany Greece Italy Luxembourg
t-statistic Critical values t-statistic Critical values t-statistic Critical values t-statistic Critical values
0.10 −2.23 −3.28 −59.90 −2.42 −7.93 −3.41 −5.63 −3.41
0.15 −3.15 −3.41 −66.24 −2.68 −10.79 −3.41 −9.56 −3.32
0.20 −7.31 −3.32 −68.98 −2.71 −14.27 −3.36 −11.14 −3.34
0.25 −9.11 −3.20 −13.19 −2.79 −15.00 −3.15 −14.96 −3.16
0.30 −7.04 −3.01 −10.66 −2.59 −10.19 −3.00 −7.72 −3.22
0.35 −6.64 −3.13 −10.16 −2.88 −8.00 −2.86 −7.99 −2.90
0.40 −4.19 −2.94 −7.32 −2.36 −5.50 −2.56 −6.29 −3.01
0.45 −4.87 −2.86 −8.39 −2.41 −5.68 −2.41 −6.99 −2.92
0.50 −5.41 −2.65 −7.66 −2.50 −5.85 −2.31 −7.19 −2.94
0.55 −5.98 −2.71 −6.58 −2.69 −7.12 −2.46 −7.15 −3.03
0.60 −6.01 −2.60 −6.33 −2.65 −5.42 −2.61 −6.77 −2.89
0.65 −1.81 −2.69 −4.85 −2.62 −3.11 −2.67 −3.06 −2.70
0.70 −1.85 −2.40 −5.04 −2.98 −3.73 −2.63 −3.37 −2.86
0.75 −1.82 −2.35 −3.85 −3.00 −4.28 −2.64 −3.05 −2.83
0.80 −6.10 −2.31 −2.81 −3.22 −9.58 −2.57 −7.14 −2.78
0.85 −5.84 −2.31 −2.38 −3.35 −10.98 −2.58 −7.63 −2.75
0.90 −7.27 −2.31 −2.65 −3.41 −13.79 −2.53 −8.08 −2.67
τ Netherlands Portugal Spain UK
t-statistic Critical values t-statistic Critical values t-statistic Critical values t-statistic Critical values
0.10 −2.51 −3.19 −6.51 −2.88 −5.58 −2.85 −15.70 −3.02
0.15 −3.52 −3.18 −13.58 −3.03 −9.92 −3.25 −16.77 −2.97
0.20 −8.02 −3.20 −11.38 −3.05 −10.14 −3.34 −14.88 −3.31
0.25 −6.03 −3.14 −9.82 −3.01 −10.03 −3.41 −7.53 −3.29
0.30 −6.09 −3.14 −7.57 −3.06 −11.36 −3.40 −7.18 −3.16
0.35 −4.42 −2.96 −8.08 −3.06 −7.15 −3.22 −6.33 −2.84
0.40 −4.31 −2.82 −5.67 −2.95 −4.83 −3.01 −6.47 −2.52
0.45 −5.26 −2.68 −4.98 −2.81 −4.83 −2.88 −6.00 −2.70
0.50 −5.02 −2.31 −5.43 −2.69 −5.09 −2.54 −6.18 −2.93
0.55 −5.15 −2.31 −5.41 −2.40 −5.92 −2.52 −5.81 −2.96
0.60 −4.68 −2.39 −5.30 −2.39 −4.03 −2.75 −5.30 −2.91
0.65 −4.94 −2.52 −3.85 −2.59 −2.41 −2.82 −5.98 −2.59
0.70 −5.36 −2.82 −3.75 −2.75 −2.49 −2.78 −3.57 −2.57
0.75 −6.37 −2.85 −2.72 −2.90 −3.13 −2.78 −3.27 −3.01
0.80 −4.70 −2.91 −3.02 −3.02 −10.29 −2.73 −3.34 −2.80
0.85 −5.48 −2.83 −1.98 −2.89 −9.55 −2.75 −4.56 −3.04
0.90 −5.16 −2.60 −3.06 −3.03 −9.99 −2.73 −3.50 −2.93

Quantiles can describe different phases of the business cycle (see, e.g., Albulescu et al., 2020; Balcilar et al., 2017).
Following the literature, the lowest quantiles (τ = 0.05, 0.10 and 0.15) indicate economic crises or troughs in relation to
trend growth, while the low quantiles (τ = 0.20, 0.25, and 0.35) encompass both depressions and recovery phases. The
middle quantiles (τ = 0.40 to 0.60) are values around the trend growth of the variable. The highest quantiles (τ = 0.85,
0.90, and 0.95) can be interpreted as booms or peaks in relation to the trend. The table on the right summarizes the most
common tourism-growth hypotheses in ‘crisis’, ‘normal’ (τ = 0.20 to 0.80), and ‘boom’ quantiles.
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Fig. 2. Nonparametric Granger causality at various quantiles. Notes: The first row (Hypo.) indicates the distribution of the four tourism-growth
hypotheses across quantiles (E stands for Economic growth-led tourism hypothesis, T denotes Tourism-led growth hypothesis, F indicates Feedback
hypothesis and N denotes Neutrality hypothesis). The second row (T → G) ticks the quantiles of GDP for which non-Granger-causality from tourism to
economic growth is rejected at the 5% significance level. Conversely, the third row (G → T) ticks the quantiles of TA for which non-Granger-causality
from economic growth to tourism is rejected at the 5% significance level. The ‘‘summary’’ table on the right-hand side indicates the most common
tourism-growth hypothesis in crisis (τ = 0.05, 0.10 and 0.15), normal levels (τ = 0.20 to 0.80) and booms (τ = 0.85, 0.90 and 0.95) in the first,
middle and third column.

A glance at Fig. 2 shows that most causal links (ticks) are concentrated in the central quantiles rather than the extreme
ones, particularly from tourism to GDP. This supports our hypothesis that tourism stimulates economic activity across the
business cycle, except during economic crises and booms. In Portugal, however, causal independence was observed in all
quantiles. In Spain, tourism and GDP are also connected in economic downturns due to greater systemic importance of
tourism, but not in economic booms (along these lines, see Prades Illanes and Tello Casas, 2020). Thus, the phase of the
business cycle matters for tourism-led growth strategies.
Despite the impacts of tourism tend to recede in economic crises (in τ = 0.05 to 0.15), it appears to contribute to
economic stabilization and recovery (τ = 0.20 to 0.35). Interestingly, this is the case in both Southern (expect in Portugal)
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and Northern European countries, even if the quantitative effect may be larger in tourism-dependent Southern countries.
Thus, inbound tourism, by levering short-run channels (such as direct and multiplier effects and the relaxation of foreign
exchange constraints), can stabilize and revive economies, which then activates long-run channels (such as economies of
scale and reallocation effects) that shape trend growth (τ = 0.40 to 0.60), but not economic booms (τ = 0.85 to 0.95). In
short, results suggest that tourism stimulates economic activity in recoveries and ‘normal’ periods, but not in crises and
booms.
Reverse causality from GDP to inbound tourism also depends on the phase of the business cycle. As expected, reverse
causality clusters around central quantiles — though less markedly than tourism-led growth. In all cases, economic growth
appears to stimulate inbound tourism up to a limit, when tourism is already at high levels relative to the trend. In Portugal,
however, causal independence was found in all quantiles. Economic-led tourism growth appears to be less frequent than
tourism-led growth in developed economies, which is in line with the literature (Ahmad et al., 2020). In sum, the business
cycle also matters for economic growth-led tourism strategies.
Overall, results support our conjecture that the feedback and TLG hypotheses tend to hold in normal conditions (in
7 and 4 countries out of 12), while the neutrality hypothesis tends to hold in extremely recessionary (6 countries) and
expansionary periods (12 countries).
This pattern is in line with, and contributes to explain, the findings that: (i) the direction of causality varies in time
and from the short- to the long-run (e.g. Balcilar et al., 2014; Enilov and Wang, 2022; Mérida and Golpe, 2016; Sharif
et al., 2017), (ii) T-G correlations vary across the business cycle (Lolos et al., 2023; Shahzad et al., 2017) and (iii) extreme
events weaken the tourism-growth relationship (Liu et al., 2022).
In sum, tourism and economic growth tend to sustain each other while shaping the economic recovery and long-run
trend, but not in severe economic crises and booms.

5. Conclusion

Tourism’s systemic importance and notable growth prospects underpin tourism’s role in economic (de)stabilization
and recovery. In this study, we examined this macroeconomic role of tourism and the policy implications by investigating
the relationship between tourism and economic growth throughout the business cycle. Our hypothesis was that tourism
can play a role in contributing to economic recovery and shaping long-run growth, but does not drive macroeconomic
dynamics during crises and booms. To test this hypothesis, we utilized a nonparametric Granger causality-in-quantile
method and analyzed data from a sample of 12 European countries spanning from 1995: Q1 to 2021: Q4.
Results support our argument that tourism influences economic growth through various channels such as multiplier
effects, capital accumulation, economies of scale and agglomeration, and reallocation effects towards low-productivity and
low-complexity sectors. Conversely, economic growth tends to allow for and attract substantial tourism inflows. However,
during economic crises, the macroeconomic impacts of tourism recede as the critical variables take center stage, as was
the case during the COVID-19 pandemic and the sovereign-debt crisis in Southern Eurozone states. After the trough,
tourism’s short-run mechanisms, including direct and multiplier effects, as well as the relaxation of foreign exchange
constraints, stabilize and stimulate economic growth. This, in turn, activates long-run channels such as economies of
scale and reallocation effects that form the growth trend. However, in economic booms, the relevance of tourism fades
once again.
On the methodological front, we conclude that examining only the median of the conditional distribution of tourism
and growth overlooks the fact that their causal relationship weakens at both the lower and upper (fat) quantiles. On
the theoretical and empirical front, we conclude that despite the four T-G hypotheses are possible, tourism can normally
support economic stabilization and recovery and shape long-run growth, while in economic crises and booms its relevance
fades. Of the 12 European countries in our sample, the feedback and TLG hypotheses were supported in 7 and 4 countries,
respectively. In extremely recessionary periods, the neutrality hypothesis tended to apply in 6 countries, while in strongly
expansionary periods it applied in all 12 countries. Interestingly, we did not find significant differences between Southern
and Northern European countries — though the quantitative effect may be stronger in tourism-dependent Southern
countries. In sum, the cycle matters in the tourism-growth nexus.
On the policy front, our study highlights the importance of macro-tourism policy and its timing in managing business
cycles. During economic crises, our results advise addressing the underlying critical problems before attempting to
stimulate inbound tourism to revive economic activity. After the trough, macro-tourism policy can contribute to economic
recovery and shape the growth trend. However, macro-tourism policy should align with the long-term strategy of
economic development to minimize potential long-term problems of tourism specialization, such as resource reallocation
towards low-productivity and low-economic complexity sectors, as well as negative externalities such as pollution and
saturation. Neglecting these issues may lead to stagnation after a tourism-led recovery.
Regarding limitations and opportunities for future research, our study does not examine the magnitude and relative
importance of specific macroeconomic effects of tourism throughout the business cycle. Future studies could focus
on specific causal channels across the cycle, such as the productivity channel and multiplier effects, to gain a more
nuanced understanding of how tourism impacts economic growth. Additionally, our analysis only considers national
aggregate tourism data, and does not differentiate between different types of tourism (such as medical tourism or sun-
and-beach tourism). Future studies could explore the unique impacts of different tourism types on economic growth.
Methodologically, our study could be extended using impulse-response techniques or alternative samples to further test
the robustness of our findings.
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Fig. A.1. Quantile Granger causality from TA (GDP) to GDP (TA). Notes: The table graphs the t-statistics of the nonparametric Granger causality in
quantiles from TA (GDP) to GDP (TA) across quantiles of GDP. The orange line indicates the 5% critical value. . (For interpretation of the references
to color in this figure legend, the reader is referred to the web version of this article.)

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Fig. A.1. (continued).

Declaration of competing interest

None.

Acknowledgment

We are grateful to the Editor and three anonymous referees for some very useful comments and suggestions.

Funding

This work was financially supported by the research project PGC 2018093896-B-I00 Mediterranean capitalism? Successes
and failures of industrial development in Spain, 1720-2020 funded by Ministerio de Ciencia e Innovación (Madrid), MCIN/AEI/
10.13039/501100011033; and by the European Regional Development Fund, ‘‘ERDF A way of making Europe’’. It was also
supported by the SARCH in Industrial Development (University of Johannesburg). None of these institutions were involved
in the elaboration and decision to publish the article.
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Fig. A.1. (continued).

Appendix

See Fig. A.1.

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