The Impact of National Institutional Quality on International Tourism Inflows: a Cross-country Evidence

Abstract

This article explores the effects of the overall quality of national governance institutions of a country, along with the quality of some of its key characteristics, on international tourism inflows and the revenues a country derives from them. This article argues that increases in institutional quality reduce transaction costs and risks faced by both suppliers of international tourist services and tourists. We hypothesize that countries with "higher quality" of governance institutions are likely to attract more international tourists and derive more revenues from them. Our hypothesis is tested using panel data drawn from 108 countries between 1996 and 2011. The results strongly support the hypothesis. This study found that regulatory quality and the rule of law are the governance characteristics that have the most impact on international tourism flows. Improvement of institutional quality has more impact on tourism in high income countries than in emerging economies. The results are robust to different estimation methods, different measures of international tourism and institutional quality.