War economy and pleasure: assessing the effects of military expenditure on tourism growth

Abstract

The objective of this study is to examine the relationship between military factors and international tourism indicators in the panel of 18 tourists and non tourists-oriented countries, over the period of 1995–2014. The results are robust by using the several panels econometric techniques including Hausman test for model specifications, panel random effect model and panel generalized method of moments estimations. The results show that arms export and military expenditures both significantly correlated with the international tourism indicators, while per capita GDP increases international tourism expenditures and it decreases international tourism receipts. The gross fixed capital formation and health care expenditures increase international tourism indicators while the incidence of tuberculosis affected the international tourism receipts in the region. Energy intensity although supports the international tourism growth, however, it does not uphold the international tourism receipts. The results confirm the bidirectional causality between international tourism indicators and domestic investment (and healthcare expenditures), while there is a unidirectional causality running from international tourism expenditures to arms export, from tourism expenditures to military spending, and from tourism growth to per capita income. The tourism led growth hypothesis and tourism induced military expenditures calls for the desirable policy attention in the region.