Tourism-led economic growth across the business cycle: Evidence from Europe (1995-2021)

Abstract

The significance of international tourism for economic (de)stabilization and recovery has been recognized. However, it remains unclear whether and why tourism drives economic growth in all phases of the business cycle. To investigate this relationship, we conducted a causality-in-quantile study using data on tourism and GDP from 12 European countries between 1995 and 2021. Our analysis reveals that tourism's influence on growth recedes during both crises and booms. Following an economic downturn, short-term mechanisms, such as direct and multiplier effects, contribute to stabilize and stimulate growth, which then activate long-term mechanisms, such as reallocation effects, that shape the growth trend. Our findings indicate that macro-tourism policies and their timing play a role in managing business cycles. However, potential long-term challenges arise from tourism specialization, such as resource reallocation towards low-productivity sectors and externalities. Therefore, policymakers must consider both the short- and long-term impacts of tourism when devising tourism-led recovery strategies.