The Role of Economic Development in Tourism Demand

Abstract

This paper investigates the relevance of the supply-side characteristics of countries as determinants of the growth of tourism. Particular emphasis is placed on the role of economic development as a driver of tourism over time. Much of the literature on tourism has focused on the effects of tourism as an income generator. However, to attract tourists, it may be necessary to have a minimum threshold of economic development. This paper examines whether economic development is relevant to tourists' decision making. A cross-sectional time series model which deals with autocorrelation and heteroskedasticity in the error term is proposed. First, the model considers a worldwide panel data set of destination countries for tourists from Australia, France, Germany, Japan, Spain, the UK and the USA. Then, the sample is divided into smaller areas according to geographical and GDP criteria to investigate differences within competing countries in the same area. The results show that for the worldwide case, economic development matters and makes a difference to tourists' decision making. Subsample analysis shows that in those countries with high GDP levels, differences in economic development are not significant, whereas in developing countries they are.