Long and Short-term Impact of Tourism on Growth in Small Developing States
IMF Working Papers, May 23, 2025
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- Long and Short-term Impact of Tourism on Growth in Small Developing States
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Bibliographic details
- Authors: Daniel Cunha, Rodrigo Garcia-Verdu, Pedro Juca Maciel
- Published: May 23, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229009591.001
Methodology and Scope
- Focus: relationship of recessions and tourism cycles on economic performance of tourism-dependent Small Developing States (SDS).
- Empirical approach: local projections regressions.
- Outcomes analyzed: potential output growth and its drivers—investment and employment.
- Short-run evaluation: a natural experiment using Cabo Verde to assess tourism's short-term relation to growth.
Key Findings
- Long-term recession effects:
- "The long-term influence of recessions are less persistent in SDS than in larger emerging markets."
- Tourist-dependent economies experience faster recoveries from recessions.
- Short-run elasticity:
- Using Cabo Verde as a natural experiment, "tourism's short-run elasticity to growth is around 0.4 over 12 months."
- Spillovers:
- There are "limited spillovers to non-tourism areas."
- Drivers examined:
- The analysis explicitly assesses investment and employment as drivers of potential output growth.
Analytical Highlights
- Local projections regressions were used to quantify dynamics of recessions and tourism cycles on potential output growth.
- The Cabo Verde case provides micro-level evidence for short-run tourism–growth elasticity over a 12-month horizon.
Implications and Areas for Further Research
- For tourism-dependent SDS:
- Faster recoveries from recessions suggest resilience patterns that differ from larger emerging markets.
- For short-term stabilization:
- A measured short-run elasticity of "around 0.4 over 12 months" indicates a quantitatively meaningful role for tourism in near-term growth fluctuations, with "limited spillovers to non-tourism areas" highlighting potential sectoral concentration of effects.
- Suggested research focus (based on study design and findings):
- Further investigation of channels linking tourism cycles to investment and employment in SDS.
- Comparative analysis between tourism-dependent SDS and larger emerging markets to understand drivers of differing recovery dynamics.
Daniel Cunha, Rodrigo Garcia-Verdu, Pedro Juca Maciel; May 23, 2025; IMF Working Papers 2025, 103 (2025).
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