Tourism Development and Environmental Sustainability in the European Union: Moderating Role of Institutional Governance

Abstract

This study examines the dynamic effects of tourism and institutional governance along with other variables on CO2 emissions (COE) in the 15 selected European Union (EU) economies over the period 1995-2018. The novel empirical evidence of this study is twofold. First, countries’ bloc effect is controlled based on the entry and exit information of EU countries, and second, in order to capture and better apprehend the aspects of institutional quality meaningful for carbon-neutral tourism in sample countries, interaction effects of tourism receipts and index of institutional quality are examined. For the robust results, non-linear autoregressive distributed lag (ARDL), fixed effects and generalized method of moments (GMM) based models are estimated, wherein the results of the non-linear ARDL approach reveal that there are no asymmetric effects of tourism and institutional quality, that intrinsically affect pollution. Specifically, the findings reveal that tourism development and trade openness can reduce COE. Also, there is evidence of the existence of an environmental Kuznets curve (EKC) in the region. Though institutional quality alone has been found to have an unfavorable impact on the environment yet the interaction term of tourism and institutional quality into the framework reveals a significant and negative impact on COE in the selected region. Therefore, it is suggested that the EU economies should develop effective strategies to improve their present institutional governance framework in such a manner that will help to promote tourism, green purchase intentions of tourists, economic development, trade liberalization and environmental quality.