Tourism and economic growth in the Pacific region: evidence from five small island economies

Abstract

We present a country-specific analysis on the effect of tourism on the economic growth of five small Pacific Island Countries (PICs) – Fiji, Samoa, Solomon Islands, Tonga and Vanuatu. The results show tourism development is growth-enhancing for all five countries. Foreign direct investment (FDI) is growth-enhancing for Fiji, Samoa, Solomon Islands and Vanuatu, and in the short run, a delayed negative association for Fiji and Vanuatu is found. Remittances are growth-retarding for Fiji, Samoa and Tonga, with a short-run delayed positive association for Fiji, Tonga and Samoa. Financial development is growth-retarding for Solomon Islands and Tonga, with a short-run positive association for Fiji and Samoa. While the results underscore the huge importance of tourism in generating growth and FDI in the Pacific, given the ongoing adverse effects of Coronavirus disease 2019 (COVID-19) pandemic, PICs will have to focus on alternative sectors to progress economic activities. Policy suggestions are discussed along these lines.