Is There Growth Impact of Tourism? Evidence From Selected Small Island States

Current Issues in Tourism
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Is there growth impact of tourism? Evidence from

selected small island states
Seyi Saint Akadiri, Ada Chigozie Akadiri & Uju Violet Alola
To cite this article: Seyi Saint Akadiri, Ada Chigozie Akadiri & Uju Violet Alola (2017): Is there
growth impact of tourism? Evidence from selected small island states, Current Issues in Tourism,
DOI: 10.1080/13683500.2017.1381947
To link to this article: http://dx.doi.org/10.1080/13683500.2017.1381947
Published online: 03 Oct 2017.
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Download by: [Florida International University] Date: 03 October 2017, At: 13:54
Current Issues in Tourism, 2017
https://doi.org/10.1080/13683500.2017.1381947
Is there growth impact of tourism? Evidence from selected small

island states
Seyi Saint Akadiria*, Ada Chigozie Akadiria and Uju Violet Alolab
a
Institute of Graduate Studies and Research Faculty of Business and Economics, Department of
Economics, Eastern Mediterranean University, North Cyprus, via Mersin 10, Famagusta, Turkey;
b
Downloaded by [Florida International University] at 13:54 03 October 2017
Institute of Graduate Studies and Research Faculty of Tourism, Department of Tourism

Management, Eastern Mediterranean University, North Cyprus, via Mersin 10, Famagusta,
Turkey
(Received 24 May 2017; accepted 16 September 2017)
This study investigates the growth impact of international tourist arrivals on carbon
emissions in selected small island states via Environmental Kuznets Curve (EKC)
hypothesis. The study employed a panel-based multivariate model for seven small
islands between the periods of 1995 and 2013 to evaluate the long-run equilibrium
relationships between international tourism and carbon emissions through the
channels of energy consumption and economic growth. Findings from the panel
cointegration results show the existence of a long-run equilibrium relationship
between the variables of interest. International tourist arrivals have a negatively
significant impact on carbon dioxide emissions in the long run. Thus, we infer that
the law of diminishing marginal returns with regard to tourism-induced EKC
hypothesis holds in the case of small island states.
Keywords: international tourism; carbon emissions; energy consumption; economic
growth; small island states
JEL Codes: Q54; P18; Z3
1. Introduction
Following the study of Zaman, Shahbaz, Loganathan, and Raza (2016), the term environ-
mental Kuznets curve (EKC) was argued to originate from the study of Kuznets (1955). He
investigated the dynamic relationship between income per capita and income inequality,
and concluded that income inequality rises with an increase in income per capita. Sustained
economic growth significantly lessens income inequality after a particular level of income
per capita is achieved. However, over the years, this hypothesis converges with environ-
mental studies, while Grossman and Krueger (1991) were the first researchers to
examine the EKC hypothesis in environmental perspectives, followed by Holtz-Eakin
and Selden (1995), Stern (2000), Dinda (2004), McKitrick and Strazicich (2005) and
Aldy (2006), among others. De Vita, Katircioglu, Altinay, Fethi, and Mercan’s (2015)
empirical analysis was debatable on whether the EKC hypothesis which proposes an
inverted U-shaped relationship between income per capita and environmental degradation
holds for Turkey.
*Corresponding author. Email: seyi.saint@emu.edu.tr
© 2017 Informa UK Limited, trading as Taylor & Francis Group

2 S.S. Akadiri et al.
Recently, the relationship between EKC and tourism development has gained growing
attention among policy-makers and researchers. Scholarly papers coupled with their policy
recommendations for sustained environmental protection have turned out to be feasible
tourism policy tools. Borhan and Ahmed (2012) critically examined the relationships
between various measures of air pollution and economic growth, and concluded that sim-
ultaneous relationship between economic growth and pollutants lends support to the EKC
framework for Malaysia. Kapusuzoglu (2014), in his analysis, though not particularly on
EKC hypothesis, examines the long-run causal nexus between carbon dioxide emissions
and real GDP (RGDP) in a panel-based model that sampled all nations of the world,
while De Vita et al. (2015) reconsiders the EKC hypothesis in a tourism development fra-
mework for Turkey, using international tourist arrival to proxy for tourism development. In
the same vein, Heidari, Katircioglu, and Saeidpour (2015) examined the relationship
between carbon dioxide emissions, energy consumption and economic growth with the
aim of validating the EKC hypothesis for Association of South East Asian Nations
(ASEAN). On the other hand, Zaman et al. (2016) examined the relationship between
tourism development, carbon dioxide emissions, domestic investment, energy consump-
tion, health expenditure and economic growth with a focus on validating EKC hypothesis,
using a panel framework for European Union, Pacific, East Asia, non-OECD and high-
income OECD countries. Their empirical results validate the inverted U-shaped relation-
ship between income per capita and carbon emissions for the sampled region, coupling a
causal relationship between energy and emissions, tourism and emissions, and growth-
led tourism among others.
Besides, it has long been claimed that tourism development enhances economic growth
– the tourism-led growth hypothesis.1 Even though this theory is inevitable, a greater
concern is what happens to economic growth when international tourist arrivals double
or triple in a host country. One major factor ignored in the existing literature is not just
limited to the interaction between carbon emission, tourist receipt and economic growth,
but also the impact of this growth on international tourist arrival on the host countries.
More focus has been placed on the positive impact of tourism on economic growth and
development, (see Albalate & Bel, 2010; Bernini, 2009; Dritsakis, 2004b; Hall, 1998)
without considering what becomes of this growth and development when the inflow
from this tourism doubles.2 For instance, investigating the impact of tourism on carbon
emission and economic growth without putting in perspective its diminishing marginal
return impact on the host country is risky. Paying more attention to what the economy
would have to gain through tourist receipts is unproductive, as this would only encourage
short-term accumulation of wealth and national growth only to be followed by longer term
slow down in such economic performance when the cost of tourism outweighs its benefits.
Failure to put a check on the growth of tourism would make the host country or tourist des-
tination vulnerable to social, political, economic and environmental turbulence.
Tourism on its own has been a major contributor to economic growth, and its effect has
contributed to the economies of many communities globally due to its ability to finance,
raise capital and create employment (Choi & Sirakaya, 2006; Dwyer & Forsyth, 2008),
thus making tourism a significant country growth objective. Globally, the tourism industry
has grown from 25 million arrivals worldwide in 1950 to a more than 825 million in 2007,
and in 2012, and reaching 1.035 billion. UNWTO estimated 3–4% growth in tourism in
2013. Tourism development has become an important target for most governments.
According to the estimates of the World Tourism Organization (WTO, 2000), the
number of international people movements around the world will surge to 1.602 billion
by 2020, while tourism receipts will reach some US$200 billion. Furthermore, the World
Current Issues in Tourism 3
Tourism Travel Council (WTTC, 2005) expects that the scale of the world tourism industry,
which made up roughly 10.4% of the world’s GDP in 2004, will increase to 10.9% in 2014.
When all components of the tourism industry are taken into account, i.e. tourism consump-
tion, investment, government spending and exports, the industry grew 5.9% in 2004 alone,
reaching US$5.5 trillion. The 10-year growth forecast is for US$9.5 trillion in 2014. For
these very reasons, thorough investigation of all aspects including both positive and nega-
tive impact of tourism development on economic growth is extremely important for
governments.
According to Liu and Var (1986), Long, Perdue, and Allen (1990), and Milne (1990),
the economic benefits of tourism not only affect the economy, but has sociocultural and
environmental impact. The host country pays a cost for mass tourism, including such
things as congestion that arises from traffic as a result of additional vehicles or noise pol-
lution arising from additional operations of airports and motor boats. Gursoy and Ruther-
ford (2004) were of the opinion that, inasmuch as the relevance of tourism can be felt on
the host country, the adverse effects such as pollution, congestion, despoliation of the
environment, crime and violence are also inevitable. Most countries incur extra cost by pro-
viding and maintaining security for the masses as a result of excessive tourist inflow. Fol-
lowing the study of Lee and Brahmasrene (2013), Katircioglu (2014a, 2014b), Katircioglu,
Feridun, and Kilinc (2014) and De Vita et al. (2015), the need to investigate the growth
impact of tourism for the small island states (SISs) arises because of the long-run equili-
brium relationship between economic growth, carbon dioxide emissions and tourism
development.
Tourism has been a major contributor to carbon dioxide emissions development of any
tourist nation. In recent studies (see Becken, 2013; De Vita et al., 2015; Gössling, 2013;
Katircioglu, 2014a, 2014b; Katircioglu et al., 2014; Lee & Brahmasrene, 2013; Lin,
2010; Zaman et al., 2016), authors argued on the importance of carbon dioxide emissions
and the significant effect of tourism development on climate change. Katircioglu et al.
(2014c) examined the long-run equilibrium relationship between energy consumption,
carbon dioxide emissions and international tourist arrival for Cyprus, and found that
there is a long-run relationship between international tourist arrival, carbon dioxide emis-
sions and energy consumption. Their empirical findings suggest that international
tourism stimulates energy consumption, thereby increasing carbon emissions. Similarly,
De Vita et al. (2015), in their analysis for Turkey, using EKC hypothesis, argued that
tourist arrivals, energy consumption and economic growth exert a positive significant
impact on carbon dioxide emissions in the long run. Kalayci and Koksal (2015) focused
on the relationship between China’s air transportation with regard to export volume and
carbon emissions. One could infer from their analysis that an increase in tourism would
lead to an increase in air transportation, which according to their findings has an influence
on the level of carbon emissions.
Stern (2006) argues that despite the widest and the greatest failure of the world market,
climate change has been considered more of a threat. One of the factors responsible for
climate change is greenhouse gas emission through carbon emissions (CO2), which is
done from human activities. Many researchers have focused their attention on CO2 emis-
sion and its adverse effect in order to develop and enact policies to mitigate climate
change. Several factors have been used by many researchers to reveal the factors that con-
tribute to carbon dioxide emissions. For instance, Tamazian, Chousa, and Vadlamannati
(2009) pointed out that, as financial institutions develop, pollution reduces. Alam,
Begum, Buysse, Rahman, and Van Huylenbroeck (2011), Anatasia (2015) and Akadiri,
Bekun, Taheri, and Akadiri (in press), on the other hand, argued that energy consumption
is one of the major contributors of CO2 emissions. Iwata and Okada (2013), examining the
influence urbanization has on emissions, reached a similar conclusion. Therefore, when
studying carbon emission, certain issues like financial development, energy consumption,
income per capita and urbanization should be considered.
Other related studies on tourism and economic growth have been done in regions
around the globe: island economies (Hernández-Martín, 2008; Narayan, Narayan,
Prasad, & Prasad, 2010; Singh, Wright, Hayle, & Craigwell, 2010; Seetanah, 2011;
Vanegas & Croes, 2003), Latin American countries (Brida & Carrera, 2008), Mediterranean
countries such as Turkey (Gokovali, 2010; Gunduz & Hatemi-J, 2005; Tugcu, 2014), Malta
(Boissevain, 1977; Katircioglu, 2009a) Jordan (Kreishan, 2010), Greece (Dritsakis, 2004b),
Cyprus (Katircioglu, 2009b), Bahrain (Mansfeld & Winckler, 2008), Dominican Republic
(Leon, 2007), Croatia (Payne & Mervar, 2010), Spain (Balaguer & Cantavella-Jordá, 2002),
Portugal (Soukiazis & Proença, 2008), Tunisia (Belloumi, 2010), Asian economies such as
Taiwan (Kim, Chen, & Jang, 2006), Singapore (Katircioglu, 2010, Katircioglu et al. 2014),
South Korea (Oh, 2005), Malaysia (Tang, 2011), sub-Sahara African countries (Ainboade
& Braimoh, 2010) and developed economies (Nissan, Galindo, & Méndez, 2011).
However, none of the studies mentioned above has examined the growth impact of
international tourism on carbon dioxide emissions through the path of energy consumption
and real income in the case of SISs. It is on this premise our study seeks to validate tourism-
induced EKC hypothesis for the SISs. In addition, the study seeks to examine whether inter-
national tourism has a diminishing marginal return impact on carbon dioxide emissions.
The principle of diminishing marginal return is an economic law of production proposed
by Ricardo (1951). It states that if one variable input is continuously increased while the
other inputs are held constant, a point will be reached where additions to these variable
inputs will yield progressively smaller increases in output. The current study seeks to evalu-
ate the reaction of the growth impact of international tourism on carbon dioxide emissions3
in the SISs, when international tourist arrival becomes double or more than double. Our
study takes a focus off tourist receipts which as the only measurement can be quite an incen-
tive for policy-makers to pursue tourism at any cost. Focusing on tourist arrivals rather than
on tourist receipts would allow one to start calculating per capita impact – impact per
tourist, a concept which motivates the diminishing marginal returns. This is critical for
SISs. There is a huge expense in SIS to supporting tourism. The ecosystems on these
islands are fragile and costs are high. With the growing rate of global change, SISs
denote some of the vulnerable and fragile resources on the earth. (UNEP, 2006)
To achieve our research objective, our study sample consists of small islands that are
famous tourist destinations around the world. SISs in our study are islands with about or
less than one million, five hundred thousand population (1,500,000). However, our study
could not capture all the small island within this description due to data unavailability.
This selection will help determine if the tourism-induced EKC hypothesis holds for the
SISs. Thus, the current study hypothesized that, as the inflow of international tourists
grows, energy consumption and income level increases, thereby leading to a decline in
the level of carbon dioxide emissions. Thus, tourism development exhibits an impact of
diminishing marginal returns on carbon dioxide emissions.
The contribution of this study is of twofold: First, the current study uses international
tourist arrivals to proxy for international tourism rather than tourist receipts, which is com-
monly used in previous studies. As discussed earlier, tourist arrivals seem to be a better
measure, because it reflects not only the wealth but also the physical impact of tourism
when compared with tourist receipts, which only capture the wealth impact and not physical
impact of tourism. Second, the existence of the law of diminishing marginal returns that
holds for tourism, which our study confirmed, is vital to call the attention of the government
and policy-makers to the growth impact of tourism on both the environment and economy
as the governments through policy-makers often enact legislative and economic policies to
enhance economic growth and environmental sustainability. Finally, building on the study
of Katircioglu (2014a), this study seeks to create awareness for the government and policy-
makers in the SISs using tourism-induced EKC hypothesis. To the best of our knowledge,
this study is the first of its kind to validate the tourism-induced EKC hypothesis for the SISs,
regarding the growth impact of international tourism on the environment and economic
growth.
The layout of the remaining part of the study is as follows: Section 2 highlights tourism
and vulnerability of the SISs. Section 3 addresses the variables including the descriptive
statistics for each country sampled, Pearson correlation coefficients results and the
source of data. Section 4 reports the empirical results and detailed discussion of the find-
ings. Section 5 presents the concluding remarks.
2. Tourism and vulnerability of the SISs

Tourism is usually recognized as a rising growth sector in SISs. It provides opportunities for
economic diversification in SISs. Tourism has a multiplier impact on other economic
sectors: if incorporated into the national development plans and programmes, with sound pro-
visions for intersectoral linkages, it enhances growth of all tourism-related sectors, including
transportation, agriculture, housing, hospitality, industry and services. Presently, the level of
tourism activities in SISs differs greatly between countries as well as geographical regions.
Also, the economic gains derived from tourism vary. In some SISs, tourism has become the
main income generation sector, while in others, tourism is relatively underdeveloped.
The major economic goals of promoting tourism as a growth sector in these SISs are to
expedite the economic growth through an increase in the national income, foreign exchange
earnings, tax revenue and employment opportunities. However, there are key constraints
facing the SISs in terms of population and small-sized land areas which limit the benefits
derived by the SISs from tourism. With regard to the constraint faced by the SISs, recently,
the SISs are prioritizing tourism as a source of earning foreign exchange (WEFEOS, 2014)
and to maximize economic growth and development.
According to the United Nations (1996) report on the management of environmental
and natural disasters in SISs of the Pacific, Caribbean and any other regions are extremely
open to destructive natural disasters due to their: First, given small-sized geographical
regions, misadventure events can easily affect or spread over the entire economy.
Second, the locations of these islands are in some very risky regions of the planet, for
instance, mid-ocean ridges with seismic activity, huge volcanic, direct exposure and tropical
cyclone belts to the forces of the seas. Third, and finally, they are dependent on few or single
sources of income, such as tourism or agricultural sector for a larger share of their real per
capita gross domestic product (RGDP).
These SISs also have limited capacity to stimulate an economic growth and develop-
ment process. The limited human resources and fragility of their ecosystem usually
prevent hope of enacting and putting in place any meaningful disaster-reduction pro-
grammes. According to the survey carried out by the United Nations Disaster Relief Coor-
dinator (UNDRO, 1990) which ranked countries based on the effect of disaster in their
GDP, from the findings, 13 out of 25 highly disaster-prone countries are SISs. Vanuatu
economy lost about 58% of its GDP on average, when it was attacked by cyclones,
while some other countries lost between 28% and 1200% of their GDP. Such huge impacts
can lead to an adverse economic growth for the affected countries in the short run.
Lastly, environmental pollution can have a grievous effect on SISs, specifically on the
pollution of aquatic living resources. Sea-level soar as a result of global warming accounts
for the greatest environmental risk for SISs. Climate change is regarded as having an impact
on the intensity and frequency of utmost hydrological and meteorological occurrence;
however, study in this area is still ongoing.
3. Data and methodology

This section discusses the data and the methodology employed in the selection of indicators
i.e. variables. For the empirical estimation, our study built a panel model for the following
7 Islands: Bahrain, Cuba, Cyprus, Dominican Republic, Haiti, Iceland and Malta. However,
our study makes use of tourist arrivals to proxy for tourism. This is done in order to mini-
mize the possibility of running into multicollinearity problem when tourist receipt is used.
The study sample is restricted to the period in which annual data are obtainable from 1995
to 2013 (19 observations for each sample country). All the data sets were sourced from the
World Bank Development Indicator Database (online).
. Tourist arrival (TA): Tourist arrival is measured by international tourist, that is,
number of arrivals. International tourists are tourists who travel to a country other
than that in which they have their usual residence, but outside their usual environ-
ment, for a period not exceeding one year and whose main objective in visiting is
other than an activity remunerated from within the country visited. In this study,
TA is used to measures the growth in international tourism.
. Carbon dioxide (CO2): Carbon emissions is measured in per capita metric tons. It
includes carbon dioxide emissions generated through stemming from the burning
of fossil fuels, gas flaring, gas fuels, consumption of liquid and solid.
. Gross domestic product per capita (RGDP): The GDP per capita is in constant 2010
U.S. dollars. It is the sum of gross value added by all resident producers in the
economy plus any product taxes and minus any subsidies not included in the value
of the products. GDP per capita is a good indicator to measure growth rather than
the usual GDP that does not account for individual standard of living, which is an
essential component of growth.
. Energy use (EU): Energy used or consumed is measured in kilograms of oil equival-
ent per capita. It refers to the use of primary energy before transformation to other
end-use fuels. This fuel is supplied to ships, aircraft and automobiles engaged in
inter or intra transport.
The model specified for our current study is built on the assumption that the growth in
international tourism (in terms of arrivals) might significantly determine or contribute to
carbon dioxide emissions level. On the other hand, in the existing energy economics litera-
ture, energy consumption has been assumed to play a vital role in the level of carbon
dioxide emissions. According to Stern (2004), energy consumption is usually employed
in the model, when evaluating the relationship between real per capita income and
carbon dioxide emission, under the environmental EKC model, where an inverted
U-shaped relationship between real per capita income and carbon dioxide emission is
expected. Thus, in addition to the real per capita income, energy consumption is proposed
to be a major determinant of carbon emission. Meanwhile, in tourist destination countries,
tourism is expected to contribute to the rise in the level of energy consumed and real per
capita income, thereby increasing the level of environmental pollution. Therefore, this
study proposes the following tourism-induced EKC model.
CO2i,t = (RGDPi,t , Energyi,t , TAi,t ), (1)
CO2i,t = ai + b1 RGDPi,t + b2 RGDP2i,t + b3 Energyi,t + b4 TAi,t + 1i,t . (2)
In Equation (2), i = 1, 2, . . . , N and t = 1, 2, . . . , T , ai denotes the country-level

fixed effects, while b1 , b2 , b3 and b4 are slope coefficients of regressors.
We report the summary statistics in Table 1. The mean values of energy use, RGDP,
CO2 and tourist arrival are given for Bahrain (11,209.17, 21,866,072, 24.29629,
5,869,053), Cuba (1035.886, 4377.141, 2.563417, 1,943,789), Cyprus (2159.431,

28,786.15, 7.00606, 2,342,895), Dominica Rep. (747.629, 4396.427, 2.19331,
3,345,579), Haiti (309.8323, 723.679, 0.197011, 211,157.9), Iceland (12,571.67,
38,830.15, 7.146144, 392,947.4) and Malta (1975.937, 19,131.51, 6.123491,
1,225,316).4 Bahrain has the highest tourist arrival and CO2 emissions (11,952,000,
29.77842), while Haiti has the lowest tourist arrival and CO2 emissions of (96,000,
0.115359). Islands that incur the highest per capita income and energy use are Cyprus
(32,651.91) and Iceland (45,556.86), while Islands with lowest per capita income and
energy use are Malta (15,014.8) and Haiti (216.5269).
Table 2 shows the Pearson correlation coefficient results for the panel data. Correlation
coefficient results between CO2 emissions, tourist arrival, RGDP and energy use are all sig-
nificant, except between RGDP and tourist arrival. The RGDP is positively related to CO2
and energy use, and CO2 is positively related to tourist arrival and energy use, while tourist
arrival is positively related to energy use. Although the correlation coefficient results are not
to be put into consideration for possible relationships that exist between variables, however,
they may be used to obtain certain information about the likely signs of the relationship that
exist between the variables. This is because the correlation relationships may vary when all
variables of interest are incorporated in panel data multivariate regressions models.
However, in carrying out a panel-based multivariate regression models like in time series
analysis, various tests are required to avoid the possibility of a spurious outcome and to
be statistically correct. These tests are discussed below:
3.1. Panel unit root test (PURT)

Several economic variables are featured by stochastic movement that might result in
making spurious or invalid conclusions. Time series variable would be stationary, if auto-
covariances of such variable is not a function of time, i.e. do not vary with time. Thus, data
either in panel or time series framework that is not stationary statistically have a unit root.
Contemporary studies have suggested that the panel-based unit root tests have higher power
compared to individual time series unit root tests (see Baltagi, 2008; Breitung, 2000; Hadri,
2000; Im, Pesaran, & Shin, 2003; Levin, Lin, & Chu, 2002; Maddala & Wu, 1999).
3.2. Panel cointegration test (PCT)

Cointegration movement which expresses long-run equilibrium relationships among
various time series variables is frequently observed. It is argued that a linear composition
8
Table 1. Descriptive statistics of the variables for the sampled countries.
S.S. Akadiri et al.

Countries Variables Mean Median St. Deviation Minimum Maximum

Bahrain Energy 11,209.17 11,209.17 888.9181 9417.038 12,319.36
RGDP 21,866,072 22,175.2 893.816 20,078.86 22,877.95
CO2 24.29629 23.1012 3.112026 20.01476 29.77842
TA 5,869,053 5,667,000 2,772,471 1,988,000 11,952,000
Cuba Energy 1035.886 1030.881 71.87975 904.6626 1162.339
RGDP 4377.141 3958.75 1163.724 2844.204 6156.618
CO2 2.563417 2.35734 0.417521 2.218752 3.462227
TA 1,943,789 2,017,000 602,591.4 742,000 2,829,000
Cyprus Energy 2159.431 2176.369 157.2362 1691.103 2398.687
RGDP 28,786.15 28,745.54 2795.562 23,965.53 32,651.91
CO2 7.000606 7.120559 0.645268 5.209884 7.963819
TA 2,342,895 2,401,000 193,046.6 1,950,000 2,697,000
Dominica Rep. Energy 747.629 748.0459 40.47921 666.5323 822.6523
RGDP 4396.427 4074.855 876.4577 3032.792 5825.47
CO2 2.19331 2.20229 0.11364 2.011352 2.41511
TA 3,345,579 3,450,000 898,203 1,776,000 4,690,000
Haiti Energy 309.8323 261.3743 72.17112 216.5269 395.8974
RGDP 723.679 718.4566 34.43149 662.2794 0.250172
CO2 0.197011 0.212694 0.039813 0.115359 773.4213
TA 211,157.9 147,000 111,120.3 96,000 420,000
Iceland Energy 12,571.67 10,804.64 3605.917 8255.769 45,556.86
RGDP 38,830.15 40,196.41 4952.42 29,650.16 18,177.25
CO2 7.146144 7.456127 0.719388 5.831234 8.222646
TA 392,947.4 360,000 168,845.3 190,000 807,000
Malta Energy 1975.937 1985.526 126.2673 1734.596 2181.144
RGDP 19,131.51 19,035.36 2159.44 15,014.8 22,588.95
CO2 6.123491 6.186419 0.422751 5.24013 6.723491
TA 1,225,316 1,182,000 134,286 1,054,000 1,582,000
Source: Authors’ computation.
Table 2. Pearson Correlation result.

RGDP CO2 TA Energy
RGDP 1.000
–
–
CO2 0.441 1.000

t-stat 5.628 –
P-value .000 –
TA −0.0001 0.619 1.000

t-stat −0.002 9.032 –
–
P-value .998 .000

Energy 0.740 0.672 0.210 1.000
t-stat 12.628 10.391 2.469 –

P-value .000 .000 .014 –
Notes: Correlation is significant at ***.01, **.05, respectively.
of two or more non-stationary time series variables may be stationary. However, if such a
situation exists, then we can conclude that there is a cointegration of a non-stationary time
series. One may interpret stationary linear combination as an existence of a long-run equi-
librium relationships between the variables of interest. It is paramount to know that using
the time series data set entails examining cointegration relationships to decide whether a
set of non-stationary time series exhibit cointegration relationship or not.5 It is believed
that cointegration relationships may or may not exist among variables, if integration
order is altered during policy switch or shift. Thus, we hypothesize to verify the existence
or absence of cointegration relationships (long-run equilibrium) among the variables of
interest.
Maddala and Wu (1999) argued that the Fisher-type panel cointegration test through the
Johansen (1991) test techniques has been proven to be more efficient than the Engle-
Granger cointegration test approach. This is because the maximum likelihood method
has significantly finite and large sample properties. The Johansen techniques make use of
two (2) ratio tests, known as “trace test” and “maximum eigenvalue test” to evaluate the
existence and number of cointegration relationships. The trace test and the maximum eigen-
value test can be employed to evaluate the existence and number of cointegration relation-
ship vectors existing in a model. However, their results can at times be conflicting, i.e. they
do not report common number of cointegration vectors all the time. Moreover, in a situation
where trace test and maximum eigenvalue test results differ, it is usually preferred to use the
maximum eigenvalue result because of its benefit of estimating separate tests on individual
eigenvalue.
It has been argued that if non-stationary variables are cointegrated, proportional error
correction representation in the dynamic short run of the variable will be affected by the
deviation from equilibrium position (see Engle & Granger, 1987; Granger, 1988).
Having obtained the results of a long-run cointegration equilibrium relationship from the
panel cointegration test estimate, a panel-based error correction model is employed to
show a long-run equilibrium relationship through the two-step techniques of Engle and
White (1999). Consistently, a panel-type error correction model can be estimated with a
period lagged error correction, and this is given as:

p
q
r
DYit = a1,0 + g1,i Dyt−1 + P1,j Dxt−j + l1,k Dectt−k + mit , (3)
i=1 j=0 k=0
where, Yit represents the dependent variable for country i at period t. t depicts 1, 2, … N, and
N is the number of observations. The Δ represent the difference operator, α depicts the con-
stant component (intercept term), while γ, П, and λ are the parameters of the regressors. The
ectt−k represents the error correction term derived from the cointegration vectors, while mit
is the stationary random term normally distributed with zero mean.
Hausman specification (1978) is a test of hypotheses in terms of inconsistency of an
estimator. Hausman test is mostly used to evaluate the consistency of an estimator, when
compared to its alternative estimator, which is more consistent. Hausman specification6
test is used to differentiate between random-effects model (REM) and fixed-effects
model (FEM) in panel data analysis. In Hausman specification, random effects are
usually proposed under the null hypothesis, due to its higher efficiency, while fixed
effects, though less efficient, are proposed under the alternative hypothesis for consistency.
For this study model specification, the null hypothesis of panel REM was rejected, thus,
determining that panel fixed effects model is appropriate. The results reported in Table 5
show that the FEM is a more robust model, using CO2 (χ2 = 90.9435) as the dependent vari-
able. The rejected null hypothesis had REM at the 1% significance level.
4. Empirical results and discussion

This section focuses on the results obtained from different panel-based estimation tech-
niques employed, emphasizing on an underlying rationale. Table 3 reports the results of
the panel unit root tests carried out using the least squares method. The Im et al. (2003)
common unit root equation includes both individual linear trends and fixed effects as
regressors.
The Fisher-type unit root test probabilities are estimated using asymptotic chi-square
distribution. The results reported in Table 3 show that the null hypothesis of the presence
of unit root cannot be rejected at level for all the variables. This implies that each time
series is panel non-stationary at level. Though when the panel unit root test at first differ-
ence is applied, the null hypothesis for all the series was rejected at the 1% significance
level (p < .01). The variables with first difference unit root tests are statistically significant;
thus, it was concluded that the series are integrated at first order, i.e. I(I).
Table 4 shows the results of the Fisher-type Johansen panel cointegration test, which is
built on the assumption that allows individual effects but no individual linear trends in
vector autoregressive models. The null hypothesis was rejected with no cointegration at
the 1% significant level (p < .01). Both the trace statistic test and the maximum eigenvalue
statistic test show at least three cointegrating vectors at the 1% significance level. The exist-
ence of cointegration vectors of these variables indicates the presence of a long-run equili-
brium relationship between the variables of interest.
Table 5 reports the results of the panel-type error correction models through FEM
methods. The numeric values reported are the coefficients of the regressors that indicate
the long-run coefficients. All the estimated coefficients are statistically significant at the
1% level. As stated earlier, there is a relationship between tourism development, CO2 emis-
sions, energy consumption and economic growth. The explanatory variables confirm their
Table 3. Panel unit root tests.

Variables
RGDP Energy CO2 TA
Methods Level Difference Level Difference Level Difference Level Difference
Levin, Lin & Chu −0.8637 −4.13*** 0.5665 −8.282*** 0.44719 −11.02*** −0.0691 −3.66***
Im, Pesaran & Shin 0.68674 −2.53*** 0.56062 −6.440*** 0.70819 −9.947*** 1.81501 −5.36***
Fisher-ADF 9.63274 30.068*** 11.7054 59.19*** 13.6668 84.04*** 14.0628 54.15***
Fisher-PP 7.05651 26.49** 19.7501 75.32*** 16.7811 108.97*** 6.53861 72.48***
Hadri 6.17958 1.919*** 6.57122 −0.544*** 2.9984 −0.804*** 6.83727 −1.72***
Current Issues in Tourism

Notes: Stationary at ***0.01, **0.05, and *0.10. Refer to Section 2 for definition of variables.
11
Table 4. Fisher-type Johansen panel cointegration test.

CO2 = ƒ(RGDP, Energy, TA)
Regression model
Number of cointegrating equations Trace test Maximum eigenvalue test
None 138.20*** 97.20***
At most 1 57.36*** 40.57***
At most 2 32.19*** 28.99***
At most 3 19.09 19.09
Notes: Based on MacKinnon, Haug, and Michelis (1999), the p-value for rejection of the null hypothesis of no
cointegration is used at .01.
Table 5. Regression for fixed-effect models.

Variables/Models CO2 = ƒ (RGDP, RGDP2, Energy, TA) p-value
Constant 5.487*** .000
RGDP 0.022*** .000
RGDP2 −2.840*** .000
Energy 0.014*** .000
TA −3.010*** .000
N 133
R-squared 0.879
Adj. R-squared 0.837
F(4, 19) 333.366*** .000
Hausman χ 40.7978
Note: Variables are all significant at the 0.01% level Durbin Watson statistics value of 1.336.
stated a priori expectations. The quadratic specifications of the models above are clearly
illustrated in Figure 1.
From the estimation results reported in Table 5, it can be seen that the estimated coeffi-
cient of RGDP without the square term is positive and statistically significant at the 1%
level, (b = 0.022, p , .01), while the RGDP2 with the squared term is negative and stat-
istically significant at the 1% level, (b = −2.840, p , .01). Our empirical results are in
accordance with the U-shaped EKC hypothesis. On the other hand, the estimated coefficient
of energy consumption indicates positive and statistically significant impact at the 1% level
on carbon dioxide emissions (b = 0.014, p , .01). However, the most crucial regressor,
international tourist arrival estimated coefficient is negative and statistically significant at
the 1% level (b = −3.010, p , .01). This indicates that a 1% change in the growth of
tourism would lead to a 3.010% change in the CO2 emission, in the reverse direction.
Finally, the estimated coefficient of the constant term is positive and large enough for the
sampled SISs, indicating that without any notable changes in the model regressors,
carbon dioxide emissions would probably increase substantially. This findings is consistent
with the study of Katircioglu (2014a). In order to substantiate our research objective of vali-
dating the EKC hypothesis for the SISs, the relationship between CO2 emissions and real
per capita income (RGDP) is illustrated in Figure 1. Before the turning point, RGDP posi-
tively influenced CO2 emissions, but immediately after the turning point, RGDP with the
squared term negatively influenced CO2 emissions. We infer that as international tourism
volume increases, this leads to an increase in the energy consumption and real per capita
income, hence environmental pollution. Thus, tourism arrival increases carbon dioxide
emissions, through an increase in the real per capita income at a decreasing rate.
Figure 1. The EKC plot with CO2 and RGDP.
This study strongly supports the hypothesis that an increase in the level of energy con-
sumed and squared real per capita income, as a result of tourism development, leads to a
decline in CO2 emissions and vice versa (see Halicioglu, 2009; Shafik, 1994). Though
the direct impact of tourism is commonly found in most studies, the relationship
between growth impacts of tourism, energy consumption, economic growth and CO2 emis-
sions yields interesting results. Thus, our empirical findings suggest tourism-induced EKC
hypothesis for the SISs.
Having confirmed the panel homogeneity through Hausman specification tests, a
series of diagnostic tests were conducted, such as contemporaneous correlation among
cross sections, heteroscedasticity and non-correlation of variance across individuals.
Examining for possible intrusion in these assumptions was critical, considering the sensi-
tivity of traditional panel-based estimators to their existence. First, cross-sectional depen-
dency test as advanced by Pesaran (2004) was conducted to verify the presence of
common unobserved shocks among cross sections. For the test, null hypothesis is speci-
fied under the assumption that the residuals are not correlated and the model is normally
distributed. Second, we implemented heteroscedasticity for the FEM, via modified Wald
(MW) test. The MW test which has a chi-square (χ2) distribution examines the null
hypothesis of homoscedasticity. Finally, the Breusch–Pagan Langragian Multiplier (LM)
test of independence was conducted to check whether the variance across cross sections
is not correlated. This test of independence also has a chi-square (χ2) distribution. Table 6
reports the rejection of the null hypothesis for the MW test and Breusch–Pagan LM test of
independence, pointing to the existence of heteroscedasticity and autocorrelation, while
the Pesaran cross-sectional dependency test indicates the absence of contemporaneous
correlation.
Considering the existence of the first-order correlation and heteroscedasticity, the Dris-
coll and Kraay (1998) fixed-effects estimators, employed by Hoechle (2007) and Fuinhas
and Couto (2015) studies, were determined. The Driscoll–Kraay estimator is a type of
matrix estimator that generates standard errors which are more robust to heteroscedasticity,
first-order autocorrelation among others. Table 7 as a benchmark reports the results for
Table 6. Diagnostic tests.

Tests Statistics p-value
Pesaran test −0.751 .452
Modified Wald test 4.602*** .000
Breusch–Pagan LM test 74.605*** .000
Note: ***Significant at the .01 level.
Driscoll–Kraay fixed effects with robust standard errors so that heteroscedasticity and auto-
correlation previously confirmed were controlled for. The Driscoll–Kraay estimation results
presented in Table 7 are consistent with the traditional panel-based fixed-effects estimators
reported in Table 5.
5. Concluding remarks
This paper examines the tourism-led EKC hypothesis by investigating the relationship
between the growth impact of international tourism and carbon dioxide emissions
through energy consumption and economic growth using a multivariate model for a
panel of 7 small tourist destination islands, between the periods of 1995 and 2013. Empiri-
cal findings indicate that the law of diminishing marginal returns holds for tourism-led
growth–carbon emissions theory. Existence of a long-run equilibrium relationships
between international tourist arrival, carbon emissions, energy consumption and economic
growth was also found. The results show that the growth impact of tourism has a negative
impact on CO2 emission for the sampled SISs. The results propose a decreasing marginal
returns relationship between international tourism and CO2 emissions. The findings lend
support from the work of Archer, Cooper, and Ruhanen (2005) and Katircioglu (2014a,
2014b) and De Vita et al. (2015).
Empirical results provide an evidence in support of tourism-led EKC hypothesis and
show that there is an existence of a long-run equilibrium relationship between carbon
emissions and tourism development via energy consumption and real per capita
income. Real per capita without the squared term and energy consumption reveals a sig-
nificant positive impact on carbon emissions, while tourism development and squared real
per capita income diminish carbon dioxide emissions in the long run. This finding is
indicative for government and policy-makers in charge of tourism and environmental
pollution policies. Since it has been confirmed that the squared real per capita income
and the growth impact of international tourism would rather decline carbon dioxide
Table 7. Fixed-effect regression with Driscoll–Kraay standard errors.

Variables/models Statistics p-value
Constant 5.535** .023
RGDP 0.023*** .001
RGDP2 −2.870*** .000
Energy 0.014*** .000
TA −3.100** .030
N 133
Within R-squared 0.144
F(4, 19) 34.68*** .000
Note: *** and ** significant at .01 and .05 levels.
emissions in case of the SISs, thus, the EKC hypothesis via growth impact of tourism is
established. This indicates that environmental protection policies are in accordance with
the stated macroeconomic objectives. These findings resonate with the study of Katircio-
ǧlu (2011, 2014a, 2014b) that tourism stimulates economic growth. Therefore, the find-
ings of this present study propose that, while growth impact of international tourism
stimulates growth in the SISs, environmental protection policies are consistent with the
macroeconomic targets.
It is no doubt that tourism plays a significant role in the economies of most of the SISs and
the larger economies of the world. However, economic and environmental pollution impact
of tourism development can never be overemphasized. From the remote and sparsely popu-
lated islands to the densely populated ones, coupled with the larger economies, each of these
countries shares an utmost vulnerability to the substantial changes in climate that are
expected to emanate from global warming. It is expected that the SISs compared to the
larger ones would produce little of the greenhouse gas emissions that are expected to contrib-
ute to climate change; however, the SIS stands to be seriously affected by the environmental
impact of those changes. The frequent rising sea levels are potential threat to drinking water
supplies and coastlines; frequency of storms and increases in the velocity would disrupt agri-
culture, make life generally more uncertain and create widespread damage. These climate
change phenomena strike at the heart of island economies and thereby significantly erode
their attractiveness as a potential tourist destinations. However, based on our empirical
results, it can be inferred that when policy-makers set a strong plan of action to convince tour-
ists using intense marketing crusade to promote the country tourism position at several inter-
national tourism fairs and exhibitions, both the environment and economy benefit only when
the arrival of such tourists is not more than the economic and environmental capacities as well
as capabilities of the host country.
Conclusively, our current study focused on the growth impact of tourism on carbon
dioxide emissions, economic growth and energy use in terms of electricity, fuel and gas.
However, to the best of our knowledge, there are few or no studies on the long-run and/
or causal relationships between tourism, waste disposal, sewage and aesthetic pollution
in literature. Meanwhile, it has been argued that in SISs with high concentrations of
tourist activities and appealing natural attractions, waste disposal can be the main
despoiler of the natural environment – roadsides, rivers and scenic areas. Similarly,
increase in the sewage pollution has been attributed to recreation, construction of
hotels and the likes. Sewage runoff can have a damaging impact on the lives of coral
reefs since it encourages the growth of algae, thereby affecting their ability to
survive, while frequent changes in siltation and salinity can equally have a grievous
effects on the coastal environment. In addition, sewage pollution is not healthy for
both animals and humans. Hence, this creates a gap in the literature; future research
in this field should examine the growth impact of tourism on waste disposal, sewage
and/or aesthetic pollution on the SISs.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. It is an assumption which has been confirmed empirically for different countries, though not gen-
eralized, that tourism can stimulate or lead to long-run economic growth (see Gunduz & Hatemi-
J, 2005; Katircioglu, 2009a; Lean & Tang, 2010)
2. We referred this situation as the growth impact of tourism. The idea behind this is that when
tourist inflow is much more than the usual, this can be termed as its growth in terms of tourism.
3. Some of the major determinants of carbon emissions with regard to tourism is the distance
between the tourist’s residence and destinations, the mode of transport choice (which facilitates
burning of fossil-fuel) coupled with their length of stay among others. Therefore, the study
hypothesized based on the findings of studies (see Gössling, et al., 2005) that, at a minimal
level, the inflow of tourists may not have a positive effect on CO2, in terms of creating more emis-
sions in the host country. However, when tourist inflow becomes explosive (i.e. the growth
impact), more energy will be burnt (fossil-fuel and other emission-related gases), length of
stay becomes longer and this may positively enhance the CO2 level and decrease the impact
on growth.
4. For variables’ measurements, refer to Section 3.
5. For interested reader, see Johansen (1991), MacKinnon (1996), MacKinnon et al. (1999), Brei-
tung (2005), and Dritsakis (2004a).
6. However, there have been some arguments about using Hausman (1978) test in a choice of model
between random effects and fixed effects. The choice of model should be based on the author’s
intuition regarding the properties of the data.
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Current Issues in Tourism

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Is there growth impact of tourism? Evidence from

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Is there growth impact of tourism? Evidence from selected small

Institute of Graduate Studies and Research Faculty of Tourism, Department of Tourism

JEL Codes: Q54; P18; Z3

*Corresponding author. Email: seyi.saint@emu.edu.tr

© 2017 Informa UK Limited, trading as Taylor & Francis Group

2. Tourism and vulnerability of the SISs

3. Data and methodology

CO2i,t = (RGDPi,t , Energyi,t , TAi,t ), (1)

CO2i,t = ai + b1 RGDPi,t + b2 RGDP2i,t + b3 Energyi,t + b4 TAi,t + 1i,t . (2)

In Equation (2), i = 1, 2, . . . , N and t = 1, 2, . . . , T , ai denotes the country-level

5,869,053), Cuba (1035.886, 4377.141, 2.563417, 1,943,789), Cyprus (2159.431,

3.1. Panel unit root test (PURT)

3.2. Panel cointegration test (PCT)

S.S. Akadiri et al.

Countries Variables Mean Median St. Deviation Minimum Maximum

Table 2. Pearson Correlation result.

CO2 0.441 1.000

TA −0.0001 0.619 1.000

P-value .998 .000

t-stat 12.628 10.391 2.469 –

period lagged error correction, and this is given as:

4. Empirical results and discussion

Table 3. Panel unit root tests.

Current Issues in Tourism

Table 4. Fisher-type Johansen panel cointegration test.

Table 5. Regression for ﬁxed-effect models.

Figure 1. The EKC plot with CO2 and RGDP.

Table 6. Diagnostic tests.

Table 7. Fixed-effect regression with Driscoll–Kraay standard errors.

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