Contextual factors influencing tourism-led growth: do social and political background matter?

Formulated almost two decades ago, tourism-led growth hypothesis is still a subject of rigorous scientific scrutiny. Although there is no doubt that methodological issues have seriously undermined the efforts to draw definite conclusions, open questions could also be a result of ignoring a broader context in which tourism and growth interact. It still remains unclear how some important contextual variables, such as social and political factors, affect the verification of tourism-led growth hypothesis. In this regard, this paper is an attempt of both, a demonstration of an advanced econometric technique applied to investigate the true nature of relationship between tourism and economic growth as well as an exploration of the influence of some, possibly very important, contextual variables on tourism-growth nexus. Specifically, the initial level of poverty and the level of political freedom are hypothesized to have a significant impact on the verification of tourism-led growth hypothesis. This is tested by utilizing a dynamic panel data model with the System GMM estimator, as recommended in recent literature.