Does financial development spur tourism growth? A dynamic time series analysis for the case of an SIDS

This paper examines the interactions between financial development and tourism growth for the case of Mauritius, a heavily tourism-dependent small island economy and one of the Africa's best economic performers. Using dynamic regressions analysis over the period 1980-2018, namely, a Vector Error Correction Model which also accounts for endogeneity issues in tourism modelling, the results confirm that financial development is associated with tourism growth in the long run. The findings also show that economic growth, income of tourists as well as the availability of hotel rooms are important determinants of tourism. Moreover, it is observed that tourism development also leads to financial development thus confirming a bi-directional causality between these two variables. The bi-directional causality was also confirmed for the financial development-economic growth nexus as well as the tourism-growth nexus. Finally, evidence of the mediating role of economic development in the financial development-tourism development link is reported.