IMF Working Papers

Long and Short-term Impact of Tourism on Growth in Small Developing States

By Daniel Cunha, Rodrigo Garcia-Verdu, Pedro Juca Maciel

May 23, 2025

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Daniel Cunha, Rodrigo Garcia-Verdu, and Pedro Juca Maciel. "Long and Short-term Impact of Tourism on Growth in Small Developing States", IMF Working Papers 2025, 103 (2025), accessed June 19, 2025, https://doi.org/10.5089/9798229009591.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We explore the relationship of recessions and tourism cycles on the economic performance of tourism-dependent Small Developing States (SDS). Using local projections regressions, we examine how these cycles affect potential output growth and its drivers—investment and employment—and estimate the short-run elasticity of tourism growth to economic activity. Our findings reveal that the long-term influence of recessions are less persistent in SDS than in larger emerging markets, as tourist-dependent economies experience faster recoveries from recessions. Moreover, we use Cabo Verde as a natural experiment to assess the short-term relation of tourism on growth and found that tourism's short-run elasticity to growth is around 0.4 over 12 months, with limited spillovers to non-tourism areas.

Subject: Balance of payments, Business cycles, Economic growth, Economic recession, Economic sectors, Foreign direct investment, Tourism

Keywords: Business cycles, Economic recession, Foreign direct investment, Global, Growth, IMF working paper No. 25/103, Relation of tourism, SDS economy, Short-run elasticity, Small Developing States, Tourism, Tourism growth

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