Inbound tourism and income inequality: the role of banking sector development

Abstract

This study empirically confirms the nonlinear effects of banking sector development on the inbound tourism–income inequality nexus by adopting the panel smooth transition regression model for 102 economies. Findings for the full sample suggest that although inbound tourism can reduce income inequality, this effect gradually weakens as the banking sector develops. In high-income economies, an increase in international tourism receipts first exacerbates and then decreases income inequality as the banking sector develops. Moreover, a well-developed banking sector could improve income distribution. In low-income economies, the international tourism receipts–inequality nexus differs from the international tourist arrivals–inequality nexus under various levels of banking sector development. International tourism receipts initially decrease income inequality and then increase it when the banking sector develops to a certain degree. However, international tourist arrivals first deteriorate income distribution and then improve it as the banking sector develops. From a policy perspective, appropriate policies should be implemented to achieve a balance between the banking sector, inbound tourism, and income inequality in high-income and low-income economies and ensure sustainable development.