Evidence of and prerequisites for tourism-led growth in Africa

Abstract

The relationship between tourism development and economic growth is often described by the tourism-led growth hypothesis (TLGH). It has been a contemporary issue in the tourism economics literature, which has gained momentum over the past couple of years. There is consensus that the broader economy is affected by tourism expansion through several channels, which include: foreign currency earnings; creation of employment; direct, indirect and induced effects on production; and income. However, the nature of the relationship between tourism development and economic growth remains inconclusive. This study contributes towards the debate on the link between tourism development and economic growth by: (i) investigating evidence in support of the TLGH for African countries; and (ii) exploring evidence of the preconditions for the successful implementation of the TLGH in Africa. The methodology employed in the research consists of three approaches: (i) a review of theoretical and empirical literature on the economic growth theory, the tourism-led growth hypothesis and the critical success factors for tourism development; (ii) an empirical investigation of the evidence of the TLGH for African countries using both a production function and a neoclassical growth function specification; and (iii) exploring the critical success factors for tourism-led growth empirically. The evidence of tourism-led growth is investigated using cross section and panel data analyses for 53 African countries from 1995 to 2013. A typical production function specification with capital, labour and three different proxies of tourism was used to estimate the effect of tourism on production. Country and region specific factors were included using dummy variables. A neoclassical growth model specification was then employed where output growth was regressed against initial gross domestic product, physical capital, human capital, tourism exports, commodity exports, trade openness and dummy variables which captured country and region specific effects. The results showed that the determinants of economic growth in Africa are human capital, total factor productivity, commodity metal exports and non-economic effects. Tourism was initially weak or of minimal importance in explaining the differences in the economic growth of African countries. Over time, tourism became increasingly significant for economic growth in the region. he study further modelled the conditions under which tourism development can contribute to economic growth. 116 research articles for 47 countries were presented indicating the evidence for or against the TLGH. The dependent variable in the analysis is dichotomous and takes the value of 1 where the evidence shows that tourism led to growth for a specific country. Using cross section and panel data from 1995-2013, logistic regressions were performed to determine the factors that contribute to the success of the TLGH. The results showed these to be human capital, financial sector development, tourism safety and security, protection of the environment, trade openness and technological development. The study makes several contributions to tourism economics literature. The study is the first one to include almost all African countries in empirically testing evidence of the TLGH. The study is also the first one to employ both a production function and growth specification to find robust evidence of the influence of tourism on production and growth. Finally, the study does not simply prescribe tourism growth as a cure for Africa’s economic growth problems, but goes a step further to identify the conditions under which tourism can positively affect economic growth in Africa.