Exploring the Effects of Tourism and Economic Growth in Fiji: Accounting for Capital, Labor, and Structural Breaks

Abstract

Fiji's tourism industry has evolved considerably in the past 30 years with past and present governments striving to support and promote the sector despite competing development priorities. This study examines the effects of tourism on the economic growth of Fiji, a small island economy, over the period 1975 to 2015. Using a neoclassical framework and the autoregressive distributed lag bound procedure, the short-run and the long-run effects are explored while accounting for structural breaks. The long-run and short-run results indicate that a 1% increase in visitor arrivals contribute about 0.13% and 0.20% to the per capita income, respectively. Additionally, a unidirectional causality from economic growth to tourism and a mutually reinforcing effect between capital investment and tourism are noted. Thus, greater impact of tourism on the economic growth can be realized through tourism-related investment activities such as improvements in airports, roads, transportation, telecommunications, financial sector, technology, and natural parks and beaches.