Tourism and productivity in NUTS regions: revisiting the tourism-led-efficiency hypothesis

Abstract

We employ data on 155 NUTS regions over 1996–2018 and assess the relationship between tourism and regional total factor productivity (TFP). We expand in two directions the literature on the Tourism-Led-Efficiency hypothesis at a sub-national level: methodologically, we are the first to use a large panel dataset framework; conceptually, this is the first study to disentangle the productivity effects of domestic tourism from those of foreign tourism. Our analysis reveals that domestic tourism is the key contributor to TFP. A large number of domestic tourists and the ease with which they can interact with local suppliers are primarily behind the contribution of domestic tourism to productivity gains. There is some evidence that foreign tourism can be associated with greater productivity in regions that are relatively open to foreign tourists, with a dynamic and competitive tourism industry that weighs significantly in the regional economy.