Tourism, Employment, and Economic Expansion in Baltics

Abstract

This article examines whether or not an increase in the relative weight of tourism sector in overall economic activity can lower the unemployment rate and enhance the process of economic growth in the Baltic States. The analysis employs two alternative methodologies: Toda-Yamamoto causality testing and Impulse Responses. The most radical insight obtained from the empirical analysis is the idea that even though the causality test results have produced the evidence of the causal effect of such a change in the sectoral composition of GDP on unemployment and economic growth in all Baltic states, the results of impulse responses functions reveal that while Estonia and Latvia are likely to benefit favorably from such a change, both income growth and unemployment rates are adversely affected in Lithuania.