Tourism Growth and Financial Sector Development Nexus: Evidence from Selected African Economies

Abstract

This article tests the tourism growth and financial sector development nexus. Data came from the World Bank and IMF for the years 1995-2020 from 43 selected African economies. We applied System GMM and dynamic CCEMG to estimate short–run effects and JKS Granger non-causality test for causality, FMOLS and FGLS to estimate long–run effects and sets of co-integration tests for co-movements. The findings support mutual reinforcing effects for both inbound tourism growth and financial sector development. Outbound tourism should be monitored and controlled for its negative effects; inbound tourism should be facilitated and promoted for its positive effects. Political stability and trade openness policies should be a priority for both sectors, while foreign direct investments should be monitored and controlled for their ambiguous impacts. In this work, we are able to show that increases in international tourism activities and developments in the financial sector mutually impact each other.