Harnessing cross-region disparities to assess the impact of tourism on regional growth in Europe

Abstract

We use regional data across 27 European countries and look into the effect of tourist arrivals on regional growth during 2000–2017. The research is set in an augmented Solow model estimated via a rich and flexible empirical strategy, with different underlying assumptions about the impacts of the regressors and unobservables. A first demarcation line across our set of estimators is between the ‘pooled’ estimators (assuming common parameters across regions) and the ‘heterogeneous’ ones (allowing for region-specific parameters). An additional axis of differentiation lies in the way the impact of unobservables is accounted for via the estimation method: some methodologies hypothesize a common impact of the latter across space, while others make room for a possible differentiated effect over the regions. Among the pooled estimators, our preferred one reveals a positive and significant contribution of tourism to regional growth. Among the heterogeneous estimators, our favored one corroborates the previous result and uncovers vast regional disparities in terms of the effect of tourist arrivals on growth. A preliminary investigation suggests that regions endowed with a large share of highly educated population experienced the greatest growth-impact of tourist arrivals.