Tourism and Economic Growth Nexus in Maldives: Asymmetric Analysis and Role of ICT

Abstract

The relentless spread of the Covid-19 pandemic, which began in the first quarter of 2020, aided by the periodical emergence of new variants, is continuing to inflict unprecedented damages on the global economy. Interruptions in international travel have led to the collapse of the tourism-related service industry, which is the backbone of the economies of many small islands and developing states. This paper focuses on the Maldives, an island nation in the Indian Ocean, which is one of the top ten most tourism-dependent economies. Adopting the Solow production function, the paper examines the tourism and economic growth relationship using nonlinear autoregressive distributed lag (NARDL) methodology. The analysis shows that tourism earnings and economic growth have a significant asymmetric relationship. The result further reveals that the magnitude of the negative impact of the decline of a given size in tourism earnings on growth is of much larger magnitude than that of the positive impact of the same size rise in tourism earnings. The negative impact of tourism is found to be more pronounced in the long run. ICT spread, measured by the rise in mobile subscriptions, is positively associated with growth and has emerged as a significant contingent factor. We suggest policy measures to step up the recovery progress and growth.