Deepening or lessening? The effects of tourism on regional inequality

In recent years, the spatial dimension of inequality has attracted considerable policy interest, since regional disparities in economic activity, incomes and social indicators often an outcome of ethnic conflicts and a breeding ground for separatist tendencies. Taking the cross-sectional dependence and heterogeneity into account, this study examines the impact of tourism on regional inequality from 1995 to 2012 within 113 countries of the world using satellite night-light based inequality proxies. The results confirm a significant long-run equilibrium relationship among the variables across the panels. Particularly, the results from panel Fully Modified Ordinary Least Squares (FMOLS) show that tourism has a negative long-run effect on regional inequality, suggesting that promoting the development of tourism is an effective tool to achieve more balanced regional development. Furthermore, the results from Dumitrescu-Hurlin Granger causality test indicate a unidirectional causality from tourism development to regional inequality. These findings complement existing researches and deliver helpful implications for policymakers.