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Tourism and financial development in small states

Author

Listed:
  • Colin Cannonier

    (Belmont University, USA)

  • Monica Galloway Burke

    (Western Kentucky University, USA)

Abstract

Tourism expenditure in Caribbean countries represents the single largest inflow of foreign exchange and is associated with a significant amount of international capital flows. Yet, the relationship between tourism and financial development (FD) has received scant attention in the academic literature. This article focuses on whether tourism promotes FD in Caribbean economies. We do so by using newly constructed data on tourism flows to the region during the period 1980–2013. We find that tourist expenditure, on average, has a positive and significant impact on various measures of FD. At our most conservative estimates, we find that by increasing tourism expenditures per capita by about $1200 (USD), depth in the financial system improves by about 10–15%, while efficiency increases by about 34%. Our results are robust to instrumental variables, system generalized method of moments, and limited information maximum likelihood estimation techniques as well as to a variety of measures of FD. Such findings may have important policy implications related to facilitating growth and development through an increase in efficiency in the system of FD.

Suggested Citation

  • Colin Cannonier & Monica Galloway Burke, 2017. "Tourism and financial development in small states," Tourism Economics, , vol. 23(6), pages 1369-1377, September.
    • Handle: RePEc:sae:toueco:v:23:y:2017:i:6:p:1369-1377
    DOI: 10.1177/1354816617689870
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    References listed on IDEAS

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    Cited by:

    1. Mercy T. Musakwa & Nicholas M Odhiambo, "undated". "Does Tourism Influence Financial Development In Kenya," Working Papers AESRIWP15, African Economic and Social Research Institute (AESRI).
    2. Colin Cannonier & Monica Galloway Burke, 2019. "The economic growth impact of tourism in Small Island Developing States—evidence from the Caribbean," Tourism Economics, , vol. 25(1), pages 85-108, February.
    3. MT Musakwa & N.M. Odhiambo, 2022. "Does Tourism Influence Financial Development in Kenya?," Working Papers AESRI-2022-15, African Economic and Social Research Institute (AESRI), revised Jun 2022.
    4. Muhammad Shahbaz & Ramzi Benkraiem & Anthony Miloudi & Aviral Kumar Tiwari, 2019. "Tourism-induced financial development in Malaysia: New evidence from the tourism development index," Tourism Economics, , vol. 25(5), pages 757-778, August.
    5. Michelle Rutty & Robert B. Richardson, 2019. "Tourism Research in Cuba: Gaps in Knowledge and Challenges for Sustainable Tourism," Sustainability, MDPI, vol. 11(12), pages 1-7, June.

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