Threshold effects on development of tourism and economic growth

This paper uses 1996-2006 data on the top 10 countries in the 2008 Country Brand Index to examine threshold effects. When exchange rate changes are higher than the threshold value, the coefficient is positive. This means that continued tourism development can greatly enhance economic growth. If a currency continues to depreciate dramatically, the correlation between the two will disappear. The interactions between tourism development and economic growth are different under various ratio threshold values of exchange rate changes. This study shows that, if the government pays attention to trends in exchange rates and implements appropriate policies, tourism can effectively boost economic growth; at the same time, inflation suppresses economic growth. Tourism can potentially contribute to economic development and so it is advisable for governments to dedicate strategic resources to tourism in order to boost short-term economic growth.