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Human development and tourism growth’s

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Manojit Chattopadhyay, Ashish Kumar, Salman Ali & Subrata Kumar Mitra

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JOURNAL OF SUSTAINABLE TOURISM
https://doi.org/10.1080/09669582.2021.1949017

Human development and tourism growth’s relationship

across countries: a panel threshold analysis
Manojit Chattopadhyaya, Ashish Kumarb, Salman Alic and Subrata Kumar Mitrad
a
IT & Systems area, Indian Institute of Management Raipur, Raipur, India; bFinance and Accounting
area,Indian Institute of Management Kashipur, Kashipur, India; cStrategic Management,Indian Institute of
Management Shillong, Shillong, India; dFinance area, Institute of Management Technology Nagpur,
Nagpur, India

ABSTRACT ARTICLE HISTORY

This paper explores the association between human development (HD) Received 4 October 2020
and tourism development (TD) by employing a panel threshold regres- Accepted 23 June 2021
sion and using an extensive dataset of 133 countries for 24 years. We
KEYWORDS
observed that the nexus between TD and HD for the entire dataset is
Human development index;
not highly convincing; TD has an insignificant effect on the human economic development;
development index (HDI). Furthermore, the nature of the relationship tourism receipt; non-linear
depends on the countries’ current status of development. The study relationship; panel
used a threshold regression framework to split the dataset based on per threshold regression
capita GDP, urbanization level, and trade openness, and the results
revealed four different situations in the relationship between tourism
and HD. The most prominent finding is the U-shaped relationship
between tourism growth and human development. We find that the ini-
tial stages of tourism growth for low-income countries is not linked to
supporting human development. The non-linear panel threshold mod-
el’s estimation shows that HD on the destination population on account
of TD depends on its country-specific characteristics. Therefore, each
country needs to develop appropriate tourism and business policies
based on their current economic parameter value threshold to pro-
mote HD.

Introduction
For many countries, the tourism sector represents a significant source of economic growth.
Tourism has developed into one of the fundamental pillars for many countries’ economic activ-
ities that complements several industries, such as transport, food and beverages, hotels, and res-
taurants, while creating employment opportunities for workers. The dynamism of tourism has
raised the industry to such heights that it has converted itself into a significant growth acceler-
ator for numerous countries. Tourism not only supplements the economic revenue of a country,
but it also contributes to aspects such as bettering society and promoting cultural growth
(Higgins-Desbiolles, 2006; Hsu & Huang, 2016; Matarrita-Cascante et al., 2010). Tourism substan-
tially supports global socio-economic development and contributes to achieving some of the
United Nations’ Sustainable Development Goals (SDGs). As the SDG framework is highly com-
plex—with 17 goals, 169 targets, and even more indicators—there is a necessity to estimate

CONTACT Subrata Kumar Mitra mitrask@gmail.com Institute of Management Technology Nagpur, 35 Km Milestone,
Katol Road, Nagpur, Maharashtra, 441502, India
ß 2021 Informa UK Limited, trading as Taylor & Francis Group
2 M. CHATTOPADHYAY ET AL.

progress in a more straightforward manner. Some common issues are covered in the SDGs’ first
four goals and the constituent indexes of the human development index (HDI). Therefore, HDI
may be used as a rough indicator to measure HD progress instead of compiling many SDG indi-
cators (UNDP, 2019).
Although the relationship between tourism and development has been extensively analyzed,
several studies have only considered the overall economic gains of tourism activities to measure
the effect. However, the focus of development has recently shifted from income growth to
income distribution, which emphasizes poverty reduction. The premise of Amartya Sen’s concep-
tual approach advocates that the spirit of economic prosperity is to stimulate human develop-
ment (Sen & Anand, 1994). A country’s growth depends not only on economic intensification but
also on the destination population’s overall health, education, and quality of life. The human
development index (HDI), published by the United Nations in 1990, is widely used by countries
to determine their HD levels. Initially, the HD measures focused only on economic growth as the
primary development parameter, but HD has broadened its focus to other aspects because of
the criticisms of its choice of indicators and its computational methodology (Klugman et al.,
2011). The HDI’s three dimensions are residents’ life expectancy, access to education, and a
decent living standard, which is measured using the gross national income. In simpler terms, the
HDI is an amalgamation of human indices, such as life expectancy, income, and education, that
are compressed into a single number.
Recent studies have started examining the relationship between tourism growth and improve-
ment in quality of life (QoL; Uysal et al., 2012; Ridderstaat et al., 2016a). This approach extends
the connection between tourism development (TD) and economic growth, although the findings
on the nature and cause of the association differ. These studies indicate the need for more inves-
tigations using large samples and a different empirical methodology to gain better insight into
this relationship. Increased tourism income cannot improve HD unless people, particularly the
low-income population, benefit from it. This study investigates the nexus between the HDI and
tourism levels using a panel dataset of 133 countries over 24 years. The findings reveal that HD
of the destination population as a result of TD depends on country-specific characteristics. While
the relationship is positive for the whole sample, it produces divergent and non-linear relation-
ships when countries are classified based on their macroeconomic boundaries. The paper is
organized as follows: The following section provides a literature review of TD and HD’s relation-
ship and formulates hypotheses for the study. The third section discusses the methods applied
to analyze data, and the fourth section discusses the empirical analysis results. The last section
recapitulates the findings and offers suggestions for future studies.

Literature review
Tourism development studies have traditionally concentrated on economic impact as a measure
of development rather than assessing the overall human development. Several studies have con-
clusively observed that tourism plays a vital role in inspiring economic growth by earning foreign
currency, which aids in importing and producing goods and services. The literature has also dis-
cussed the causal relationship between tourism and economic growth. The main attempt has
been to find the causality direction of whether tourism development causes economic growth or
vice versa. The tourism-led growth hypothesis (TLGH) was first proposed by Balaguer and
Cantavella-Jorda (2002) while investigating the Spanish economy’s growth. Consequently, many
studies have examined the validity of the TLGH by employing different datasets, including sin-
gle-country, multi-country, or panel datasets; however, the studies have not found conclusive
results. According to the literature, the causal relationships are divided into four possibilities: uni-
directional causality between tourism and growth, unidirectional causality between growth and
tourism, bidirectional causality between tourism and economic development, and a lack of a
 JOURNAL OF SUSTAINABLE TOURISM 3

causal relationship (Lee & Chang, 2008). A comprehensive review of the literature on the TD and
economic growth nexus is provided by Brida et al. (2016) and Ahmad et al. (2020).
Tourism growth is generally associated with increased employment and earning of additional
revenue from tourists’ goods and services. Aside from high engagement, Uysal et al. (2012) pro-
vide examples of tourism’s role in improving local communities’ welfare, which suggests a direct
relationship between TD and QoL. Furthermore, increased jobs and sales generate additional tax
incomes, leading to increased public expenditure. Tourism growth contributes to the economic,
social, health, and environmental improvement of residents, which leads to overall development.
The link between TD and QoL for the island of Aruba was analyzed by Ridderstaat et al. (2016a).
Using cointegration and causality tests, they found a two-way reciprocal relationship between TD
and improvement in the QoL. The relationship between TD and QoL in developing countries was
examined by Kubickova et al. (2017) using panel data. They revealed a bi-directional causal rela-
tionship between these variables when the human agency dimension was used to moderate this
relationship. While investigating the connection in Aruba using economic growth as a mediating
variable, Ridderstaat et al. (2016b) found that there may be an inherent interrelationship
between TD and residents’ QoL. Some researchers
Using haveand
exploratory emphasized the dynamic
confirmatory role of and
factor analysis tourism in promoting
structural
human development.
equation modeling, they concluded that TD affects QoL, both directly and indirectly.
Resources aimed at satisfying tourists can generate more consumption, which produces more
material resources to meet the destination residents’ social needs. For instance, Gholipour et al.
(2016) as well as Chen and Li (2018) note that foreign tourists favor travelling to happy countries
and spend more money there. Healthy living and an educated workforce can lead to greater
prosperity and happiness. The relationship between quality-of-life tourism growth and economic
extension for small island destinations was analyzed by Croes et al. (2018); they found that the
relationship between tourism growth and quality of life is partial, as the expansion of tourism
only improves quality of life for a short duration. The study found that although tourism special-
ization increases income for individuals and for the overall economy, income’s effect on resi-
dents’ lifestyle is not clear, because the increased income benefits some members of society at
the expense of others.
Despite the many positive effects of tourism, the cost of living increases because of the add-
itional demand for accommodation, and the prices for local products also increase due to
tourists’ arrival. Congestion and environmental stress can also occur (Andereck et al., 2007; Biagi
& Detotto, 2014). Given these obstacles, it remains uncertain whether economic growth directly
contributes to the viable development of a tourist destination. Moreover, employment opportu-
nities based on tourism are considered insecure due to their part-time nature. These jobs are pri-
marily dominated by women from lower-income households, and they are poorly remunerated
(Ferguson, 2010). As previously mentioned, the advancement in economic activities increases liv-
ing expenses, which ultimately leads to a long-range depletion of public welfare. The qualitative
studies that have concentrated on the relationship between hosts and tourists have also over-
looked the necessary changes in QoL due to undesirable outcomes. Several factors such as ter-
rorism, crime, climatic disturbances, pollution, and environmental hazards negatively impact the
tourism sector’s development. One of the common effects of the increased tourist influx is the
escalation in local crimes (Biagi & Detotto, 2014).
Unlike the relationship between TD and economic growth, TD and HD’s relationship has
attracted relatively less attention in the literature. For Nobel Laureate Sen, earning and consum-
ing are only two human development elements, but the most important criteria are individuals’
ability to choose their desired living conditions. Therefore, a new HDI was introduced that is a
composite index to judge countries based on three development measures: life expectancy, edu-
cation level, and earnings (Anand & Sen, 2000; Sen & Anand, 1994). Croes (2012) study was one
of the first to assess the influence of tourism on the citizens using Sen’s capability approach. The
author found a link between human development and tourism activities in Nicaragua and Costa
Rica. With the growth of tourism, Nicaraguans made better use of their resources. The study also
4 M. CHATTOPADHYAY ET AL.

showed that the relationship between tourism and HD had a bilateral relationship, where TD
and HD benefitted each other. However, the reciprocal relationship does not exist in Costa Rica,
where a one-way link from tourism to human wellbeing was found. Despite the poverty decline
and improved standard of living, Costa Rica has not contributed to TD.
The dynamic relationship among HD, economic growth, and tourism was analyzed using coin-
tegration techniques by Rivera (2017). The study revealed that tourism does not stimulate HD for
Ecuador. The causal relationship supporting economic-led tourism growth is unidirectional,
where TD is caused by economic expansion. Using Poland as a case study and adopting the
translog production function and a limited information maximum likelihood methodology, Croes
et al. (2021) examined TD and HD’s relationship and found that TD has a short-term impact on
economic development and an indirect negative link with HD. It was observed that economic
growth acts as a channel that helps the expansion of HD. Analyzing 63 countries between 1996
and 2008, Biagi et al. (2017) confirmed that tourism is positively associated with HD. They
observed that tourism investment has a strong and significant positive impact on HD in destin-
ation countries. They also found that literacy rates were most influenced. Their findings suggest
that tourism has a much broader impact on destination countries in addition to providing eco-
nomic benefits. The authors proposed the need for further investigation of the relationship
between HD and tourism.
The association between TD and HD is complex. Tourism development renders the resources
needed to promote and maintain improvements in HD. The literature has found that people in
high-income countries are healthier, more productive, and have a longer lifespan than those in
low-income countries, which illustrates the importance of income and wealth in human develop-
ment (Woo et al., 2015). However, human development growth also includes health, education,
and skills. All of these factors provide tourism’s benefit to the destination residents, but their
impact, nature, and role in shaping the HDI needs further exploration. Croes (2012) found that
TD supports HD with material resources and expands people’s options and chances to achieve a
healthy and satisfying life. According to Pyke et al. (2016) finding, HD is a crucial tourism out-
come that can benefit both tourists and residents, yet how tourism benefits affect HD is unclear
due to the conflict between wants and needs of life. However, human development is facilitated
when monetary resources support health, education, living comfort, and facilities to sustain a ful-
filling life (Croes et al., 2020).
The development of tourism should focus on expanding possibilities and opportunities with
the primary purpose of human development. As tourism provides opportunities for residents of
destinations, such as promoting employment, providing income to purchase food and shelter,
and encouraging peoples’ engagement in community activities, these physical benefits also
impact the socio-economic needs of people. Eren et al. (2014) analyzed the human development
index for 84 countries and considered the applicability of nine socio-economic variables. They
found that life expectancy at birth, expected years of schooling, the labor force participation rate
(female to male ratio), and GDP per capita significantly impact human development. As the rela-
tionship between TD and HD is complex, the benefits of TD on HD also depend on the country-
specific characteristics, based on their current levels of development. More research is needed to
identify the underlying factors that stimulate more HD following the expansion of TD.
Most of the studies have analyzed the relationship between TD and its effect on various HD
dimensions for a single country or a small group of countries. The analysis of a large number of
countries that determines the relationships between HD and TD for different socio-economic
groups can reveal interesting information. To fill this gap, this study used a large dataset of 133
countries that included almost all countries for which the required HDI data and selected varia-
bles are available. In addition, the study measured the presence of a non-linear relationship of
TD’s effect on the HDI and its threshold effect on different socio-economic criteria. The five sets
of null and alternative hypotheses were formed to obtain a broader understanding of the
relationships.
 JOURNAL OF SUSTAINABLE TOURISM 5

With a large number of countries in the sample, the general relationship between HD and TD
was analyzed using the following null and alternative hypothesis:
H10: The HDI of a country improves with an increase of TD.
H11: The HDI of a country remains unaffected by the level of TD.

Since the linear relationship between tourism activities and development has been ques-
tioned by several studies, such as Chang et al. (2012), Figini and Vici (2010), and Adamou and
Clerides (2009), this paper investigates the non-linear relationship of TD’s effect on the HDI in
the second null hypothesis (H2) using a second-degree connection as follows:
H20: The HDI has a linear relationship with TD.
H21: The HDI has a non-linear relationship with TD.

Several studies that have explored the relationship between TD and HD have found that the
relationship differs based on country-specific parameters. Previous research has found that TD
and HD have a tenuous relationship that may rely on threshold parameters. De Vita and Kyaw
(2017) found a negative impact on growth at the exponential tourism specialization level that is
dependent on the countries’ financial development level. Thus, the third hypothesis investigates
whether the TD-HD relationship is affected by country-specific development parameters such as
per capita GDP, urbanization of the country, and trade openness. Croes (2012) study on
Nicaragua and Costa Rica indicated that the threshold value of the country-specific parameters
might impact the relationship between TD and HD. To examine the effect of the country-specific
parameters, we adopted a threshold regression approach to reveal the intricate nexus between
TD and the HDI. The following hypotheses (H3, H4, and H5) were used to investigate the thresh-
old effects.
The third hypothesis classifies the countries based on their per capita GDP and measures the
relationship of HD and TD:
H30: The relationship between the HDI and TD is unaffected by the per capita GDP.

H31: The relationship between the HDI and TD is affected by the per capita GDP.

The fourth hypothesis classifies the countries based on their urbanization level to measure
the relationship between TD and HD:
H40: The relationship between the HDI and TD is unaffected by the urbanization level.

H41: The relationship between the HDI and TD is affected by the urbanization level.

The fifth hypothesis measures the relationship based on countries’ trade openness:
H50: The relationship between the HDI and TD is unaffected by trade openness.

H51: The relationship between the HDI and TD is affected by trade openness.

Methodology
The study investigated the link between tourism and human development for a panel of 133
countries. The variables used in the study, their descriptions, their units of measurement, and
data sources are presented in Table 1. The data was collected from datasets of world develop-
ment indicators (WDI) that are available on the World Bank’s website (https://databank.world-
bank.org/source/world-development-indicators). Since the selected variables’ required data for all
the years for all countries were not available, the dataset was pruned to only include countries
for which adequate data were available. The few missing values were replaced by the neighbor-
ing non-missing values to prepare a balanced panel dataset. Tables 2 and 3 provide the sum-
mary statistics and a correlation matrix of the variables.
6 M. CHATTOPADHYAY ET AL.

Table 1. Variables used in the study.

Variable Description Unit Source
HDI Human development index Decimal converted to a percentage UNDP
TREC International tourism, receipts US$ converted to the natural logarithm World Bank
CONS Final consumption expenditure % of GDP World Bank
GCF Gross capital formation % of GDP World Bank
TRADE Trade (import þ export) % of GDP World Bank
SCHOOLING Mean years of schooling years UNDP
LEXP Life expectancy at birth years UNDP
GDPPC GDP per capita US$ World Bank

Table 2. Summary statistic of the variables and the correlation matrix.

Statistic HDI LTREC CONS GCF TRADE SCHOOLING LEXP GDPPC
Mean 65.90 20.43 82.29 24.03 82.53 12.19 68.64 10346
Median 68.10 20.61 80.74 22.88 71.10 12.40 71.10 3043
Maximum 95.40 26.27 236.87 69.53 408.36 23.30 84.50 118824
Minimum 22.80 11.51 35.07 2.42 0.17 2.40 31.00 103
Std.Dev. 17.23 2.43 16.33 8.46 50.41 3.43 10.02 16812
Skewness 0.31 0.30 2.28 1.20 2.35 0.28 0.77 2.59
Kurtosis 2.11 2.55 19.34 6.32 11.75 2.86 2.79 10.92
Jarque-Bera 158 73 38290 2236 13130 45 324 11922
Probability 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Following Croes (2012) and Biagi et al. (2016), the analysis’ dependent variable is the HDI. This
study considers tourism measures as well as other economic indicators that are likely to influ-
ence HDI. Furthermore, in line with the study of Eren et al. (2014), two more variables, mean
years of schooling (SCHOOLING) and life expectancy at birth (LEXP), are added to the relationship
to represent education and health-related factors, respectively. The relationship between HDI and
tourism is examined in a multivariate structure as follows:
HDI ¼ f fTREC, CONS, GCF, TRADE, SCHOOLING, LEXPg (1)
The independent variables were chosen based on their perceived impact on HDI. Most of the
economic-related independent variables used in the study were also used by Biagi et al. (2016).
The variable CONS represents government consumption as a percentage of GDP. According to
Grier and Tullock (1989), there is a negative relationship between economic growth and con-
sumption growth. The variable GCF measures total gross capital formation as a percentage of
GDP; Harrod (1939) and Rostow (1959) noted that countries with a higher investment relative to
their GDP grow at a faster rate compared to others, and therefore, the GCF is likely to have a
positive relationship with HDI. Several studies have found that trade openness (TRADE) has a
positive relationship with economic growth. This variable contains information about the extent
to which an economy is open to the outside world, and it represents total trade (imports plus
exports) as a percentage of GDP. Countries with more trade openness should experience higher
economic growth (Biagi et al., 2016). The study’s primary purpose is to find the relationship of
HDI with tourism receipts (TREC). Since the TREC range was considerably high, we used logarith-
mically transformed values of it, and the transformed variable is denoted as LTREC. Moreover, to
explore the non-linear influence of LTREC on HDI, we added the squared term (LTREC2) as
another independent variable.
The relationship among the variables can be organized in a regression format as follows:
HDIit ¼ a þ b1 ✕LTRECit þ b2 ✕ltrec2it þ b3 ✕CONSit þ b4 ✕GCFit þ b5 ✕TRADEit þ b6 ✕SCHOOLINGit
þ b7 ✕LEXPit þ eit
(2)
 JOURNAL OF SUSTAINABLE TOURISM 7

where the ‘i’ represent the countries used in study f1, .,133) and "t" is the measure of time (from
the year 1995 to 2018, renumbered as 1 to 24), the eit. variable represents the stochastic
error term.

Second generation tests applied to the panel dataset

The general premise of panel data modeling is that the series is cross-sectional independent,
especially for large panels. The presence of cross-sectional dependency (CD) can pose severe
obstacles for testing the presence of unit roots in the series. Pesaran (2007) observes that CD
could be resolved by extending the formal DF method taking cross-sectional means of the
lagged value of the variables and the individual series’s first difference values. Accordingly, this
study applied the CD test proposed by Pesaran (2007). The existence of dependency between
cross-sections requires the application of second-generation approaches for panel data analysis.
Recent studies have shown that panel unit root tests have high power compared to time series
unit root, and hence this analysis used the CIPS test suggested by Pesaran (2007) to take care of
heterogeneity and CD.
Further, the existence of a cointegrating relationship among variables was examined using
tests specified by Pedroni (1999, 2004) and Kao (1999). Pedroni extended the Engle-Granger
framework and allowed heterogeneity in the intercept and trend factors through cross-sections.
Kao’s test also adopts the same approach as Pedroni’s test but requires specific cross-sectional
intercepts and homogeneous regressor coefficients. According to Paramati et al. (2017), the
application of the OLS method can have an asymptotic bias, and hence they proposed the appli-
cation of the Fully Modified OLS (FMOLS) approach to minimize the bias.
Dumitrescu and Hurlin (2012) proposes an extended version of the Granger causality
approach to ascertain predictively of one variable for another of a panel dataset using the fol-
lowing equation:
P P
yi, t ¼ a þ Ll¼1 bi, l yi, tl þ Ll¼1 ci, l xi, tl þ et , where y and x are time series of dependent and
independent variables for the individual in cross-sections (i) for time (t). The constants of the
model can vary across components, but they are considered invariant over time. The lag order,
L, is assumed to be the same for each series, and the panel data set is deemed to be balanced.
The test involves separate regressions for each (i) using null hypothesis: ci, 1 ¼ c2i, ¼ . . . ¼ ci, L ¼
0 and obtained Wald’s statistic Wi and further calculated the W statistics taking the average indi-
vidual values. The authors applied Monte Carlo simulations to demonstrate that the W̅ statistic
behaves asymptotically and is suitable for studying the causal relationship in panel datasets. It
has good finite sample properties when the duration “t” and the number of components “n” is
less. It allows testing for homogeneous non-causality and taking into account the heterogeneity
of the panel data set.

Panel threshold regression

The Panel Threshold Regression used in the study is primarily based on Tong (1983) and Hansen
(1996), allowing individual observations to be split into different regimes depending on an indi-
cator variable. After that, Hansen (1999, 2000) advanced the econometric procedures for thresh-
old regression with panel data. It divides the sample space into two or more regimes based on
whether the threshold variable’s value is less than or greater than a threshold value. It provides
different regression slopes to distinguish these regimes.
0 0
y i , t ¼ l i þ b 1 x i , t I ð qi , t  c Þ þ b 2 x i , t I ð qi , t > c Þ þ e i , t (3)
Where yi, t is the dependent variable, xi, t is the vector of independent variables, qi, t is the
threshold variable, I() is a dummy indicator that becomes one (1) when the condition within
8 M. CHATTOPADHYAY ET AL.

Table 3. Correlation matrix.

Variable HDI LTREC CONS GCF TRADE SCHOOLING LEXP GDPPC
HDI 1.00
LTREC 0.77 1.00
CONS 0.37 0.43 1.00
GCF 0.09 0.06 0.27 1.00
TRADE 0.21 0.01 0.13 0.26 1.00
SCHOOLING 0.93 0.71 0.28 0.04 0.14 1.00
LEXP 0.92 0.73 0.32 0.14 0.17 0.82 1.00
GDPPC 0.68 0.55 0.32 0.05 0.24 0.63 0.58 1.00

the bracket is satisfied, and else it becomes zero (0). l is the fixed effect measure for countries,
and ei, t is the error term. Although the point estimates for the b’s depend on the threshold value
c, it is unknown beforehand and needs to be endogenously determined. Hansen (1996) pre-
scribes a grid search method for determining a near-optimal value of c that reduces the sum of
squared errors (SSE) captured by the OLS estimates of equation (3). Further, it is suggested that
while minimizing SSE, the threshold value to be restricted by excluding the smallest and largest
g% values of the threshold variable. The single threshold model for HDI and its determinants
can be delineated as follows.
HDIit ¼ ½b1, 0 þ b1, 1 ✕LTRECit þ b1, 2 ✕LTREC 2it þ b1, 3 ✕CONSit þ b1, 4 ✕GCFit þ b1, 5 ✕TRADEit
þ b1, 6 ✕SCHOOLINGit þ b1, 7 ✕LEXPit fðIi
 c1 Þ
þ ½b2, 0 þ b2, 1 ✕LTRECit þ b2, 2 ✕LTREC 2it þ b2, 3 ✕CONSit þ b2, 4 ✕GCFit þ b2, 5 ✕TRADEit
þ b2, 6 ✕SCHOOLINGit þ b2, 7 ✕LEXPit fðIi
> c1 Þ þ eit
(4)
After determining the threshold value c, it is essential to check whether it produces statistic-
ally significant regimes. It requires testing of the null hypothesis that b1 ¼ b2. As the threshold c
is not identified under the H0, the distributional properties would be non-standard. Hansen
(1996) proposed a bootstrap procedure using simulation for the equation’s asymptotic distribu-
tion and proposed the following test. The null hypothesis of no threshold effect can be rejected
when the test’s p-value is less than the critical value.
S0 S1 ð^c Þ
F1 ¼ (5)
^2
r
Where S0 is the squared standard error obtained from solving equation (3) without threshold
effect, S1 is the squared standard error for the threshold model, and r^ 2 is the variance of the
error term of the threshold regression model. If the threshold effect is found significant, we
should find whether the estimated ^c is consistent with the threshold’s true value (c). Hansen
(1999) also extended the panel threshold model to test for multiple thresholds. For the F-test for
two threshold models, the threshold equation is as follows.
S1 ðcÞS1 ð^c Þ
LR1 ðyÞ ¼ (6)
^2
r
Later, Gonzalez et al. (2017) proposed a three-stage panel smooth transition regression (PSTR)
model as per equation (7).
0 0 0
y i , t ¼ l i þ b 1 x i , t I ð qi , t  c 1 Þ þ b 2 x i , t I ð c 1 < qi , t  c 2 Þ þ b 3 x i , t I ð c 2 < qi , t Þ þ e i , t (7)
 JOURNAL OF SUSTAINABLE TOURISM 9

Table 4. Results of cross-sectional dependency tests.

Pesaran scaled LM test Bias-corrected scaled LM test Pesaran CD test
Variables Test Statistic p-value Test Statistic p-value Test Statistic p-value
HDI 1376.79  0.00 1373.86  0.00 439.09  0.00
LTREC 909.14  0.00 906.20  0.00 333.69  0.00
CONS 257.79  0.00 254.86  0.00 20.22  0.00
GCF 214.08  0.00 211.14  0.00 27.86  0.00
TRADE 380.58  0.00 377.64  0.00 64.94  0.00
SCHOOLING 970.90  0.00 968.00  0.00 342.35  0.00
LEXP 1329.06  0.00 1326.17  0.00 419.86  0.00
GDPPC 1169.89  0.00 1166.95  0.00 404.05  0.00

Following Chiu and Yeh (2017), the two-stage threshold model for HDI can be expressed as
follows:
HDIit ¼ ½b1, 0 þ b1, 1 ✕LTRECit þ b1, 2 ✕LTREC 2it þ b1, 3 ✕CONSit þ b1, 4 ✕GCFit þ b1, 5 ✕TRADEit
þb1, 6 ✕SCHOOLINGit þ b1, 7 ✕LEXPit fðIi  c1 Þ

þ½b2, 0 þ b2, 1 ✕LTRECit þ b2, 2 ✕LTREC 2it þ b2, 3 ✕CONSit þ b2, 4 ✕GCFit þ b2, 5 ✕TRADEit
þb2, 6 ✕SCHOOLINGit þ b2, 7 ✕LEXPit fðIi  c2 Þ

þ½b3, 0 þ b2, 1 ✕LTRECit þ b3, 2 ✕LTREC 2it þ b3, 3 ✕CONSit þ b3, 4 ✕GCFit þ b3, 5 ✕TRADEit
þb3, 6 ✕SCHOOLINGit þ b3, 7 ✕LEXPit fðIi > c2 Þ þ eit (8)
The following steps are used to build a panel threshold model. First, we determined the mod-
el’s specifications by testing the linear versus threshold model using F-test and selected the opti-
mum number of thresholds and threshold values. In the second stage, the panel regression is
estimated for each regime as separated by the thresholds. Finally, the regression results are eval-
uated, and slope coefficients are analyzed for possible implications.

Empirical results
Before ascertaining each series’ unit root properties, we estimated the cross-sectional depend-
ency of the variables through Pesaran’s tests as described in the methodology section. We used
three tests: Pesaran-scaled test, bias-corrected scaled test, and the Pesaran CD test. The results
are produced in Table 4. Next, we used the CIPS and CADF unit root tests that can better handle
cross-sectional dependence. The results of the tests are presented in Table 5. The tests revealed
that variables are stationary at their first difference. Thus, thus all variables are I(1), and finding a
long-term relationship among the variables is possible if the variables are cointegrated.
The application of panel cointegration approaches to analyze the relationship for the I(1) ser-
ies has gained attention in the empirical literature. Since the series used in the study was I(1),
we established the existence of cointegration using tests prescribed by Pedroni (1999, 2004) and
Kao (1999). Pedroni extended the Engle-Granger framework (Engle & Granger, 1987) and allowed
heterogeneity in the intercept and trend factors through cross-sections. Adopting a similar
approach, the Kao test used a cross-section-specific constant with homogenous regression coeffi-
cients. The Pedroni test results are presented in Table 6, and that of the Kao cointegration test
are given in Table 7.
Most of the individual tests of Pedroni suggest the cointegrated relationship between the var-
iables. The Kao test also confirmed a cointegrated relationship among the variables. Following
Paramati et al. (2017), we used the fully-modulated ordinary least squares (FMOLS) to find the
cointegration equation between HDI and other variables as per Equation (2). The results are pre-
sented in Table 8, and the findings reveal that LTREC has a negative but insignificant relationship
10 M. CHATTOPADHYAY ET AL.

Table 5. Results of the CIPS and CADF test for unit root tests.
Panel A: Test results for level values
CIPS test CADF test
Panel B: Test results for first differenced values
CIPS test CADF test
Variable Statistic p-value Statistic p-value
HDI 3.28 1.00 261.26 0.64
LTREC 5.83 1.00 186.64 1.00
CONS 2.03 0.21 321.61 0.15
GCF 5.18  0.00 411.00  0.00
TRADE 0.06 0.52 259.50 0.67
SCHOOLING 1.41 0.92 283.57 0.22
LEXP 10.52  0.00 753.72  0.00
GDPPC 13.08 1.00 66.58 1.00
Variable Statistic p-value Statistic p-value
HDI 13.16  0.00 650.49  0.00
LTREC 25.08  0.00 1143.81  0.00
CONS 26.41  0.00 1207.75  0.00
GCF 26.32  0.00 1194.00  0.00
TRADE 26.46  0.00 1202.55  0.00
SCHOOLING 14.83  0.00 705.00  0.00
LEXP 3.62  0.00 715.56  0.00
GDPPC 18.90  0.00 867.62  0.00

Table 6. Results of Pedroni cointegration test.

Measures Statistic p-value Wt. Statistic p-value
Panel v-Stat. 20.450  0.00 2.930  0.00
Panel rho-Stat. 14.576 1.00 14.991 1.00
Panel PP-Stat. 9.256  0.05 2.972  0.00
Panel ADF-Stat. 1.162 0.12 4.168  0.00
Group rho-Stat. 18.321 1.00
Group PP-Stat. 21.761  0.00
Group ADF-Stat. 4.929  0.00

Table 7. Results of Kao cointegration test.

Measures Statistic p-value
ADF-Stat 6.621  0.000

with HDI. Among the other variables, the coefficients of TRADE, SCHOOLING, and LEXP were
found to be positive and significant; thus, the increase of these variables can improve HDI.
In the next stage, we conducted the panel non-causality test of Dumitrescu and Hurlin (2012)
for the panel dataset based on the individual Wald’s statistic Wi and averaged it to obtain the W
statistics. The causality test results of HDI with other variables are presented in Table 9. The
causal relationship between HDI and all the other variables is bidirectional and statistically
significant.
We then used the threshold regression approach using three different threshold parameters.
First, we used GDPPC as the threshold parameter and applied an F-test as suggested by Hansen
(1996, 1999) as presented in Table 10. In this table, F-stat for optimum number of threshold is
presented and the tests confirmed that 2 versus 3 three thresholds are optimum. The threshold
regression results for GDPPC are presented in Table 11, wherein the results of three optimum
thresholds for GDPPC at 748, 3,771, and 17,460 are presented. Panel A of the table describes the
relationship for low-income countries with GDPPC less than 748. The coefficient of LTREC is nega-
tive and significant, but the squared term of it (LTREC2) is positively significant. Thus, the regres-
sion presents a U-shaped relationship, which means that an increase in tourism receipts
 JOURNAL OF SUSTAINABLE TOURISM 11

Table 8. Results of cointegrating equation (FMOLS).

Variable Coefficient Std. Error p-value
LTREC 0.0684 0.0958 0.48
CONS 0.1388 0.0089 0.00 
GCF 0.1336 0.0228 0.00 
TRADE 0.0220 0.0039 0.00 
SCHOOLING 2.9614 0.0916 0.00 
LEXP 0.6425 0.0346 0.00 
R-squared 0.9476
Adj. R2 0.9475

Table 9. Results of heterogeneous panel causality test.

Null Hypothesis W-Stat. Zbar-Stat. p-val.
LTREC does not homogenously cause HDI 3.35 4.80 0.00
HDI does not homogenously cause LTREC 6.31 17.99 0.00
CONS does not homogenously cause HDI 2.88 2.73 0.01
HDI does not homogenously cause CONS 4.24 8.78 0.00
GCF does not homogenously cause HDI 3.69 6.32 0.00
HDI does not homogenously cause GCF 4.72 10.91 0.00
TRADE does not homogenously cause HDI 3.50 5.50 0.00
HDI does not homogenously cause TRADE 6.00 16.61 0.00
SCHOOLING does not homogenously cause HDI 3.79 6.79 0.00
HDI does not homogenously cause SCHOOLING 4.47 9.79 0.00
LEXP does not homogenously cause HDI 7.85 24.85 0.00
HDI does not homogenously cause LEXP 6.12 17.13 0.00

Table 10. Optimum number of thresholds.

Threshold Test F-stat. F-stat. (Scaled) Critical Value
Panel A: For GDPPC as Threshold
0 vs. 1  75.30 527.07 21.87
1 vs. 2  82.79 579.52 24.17
2 vs. 3  38.52 269.63 25.13
3 vs. 4 18.65 130.55 26.03
Panel B: For URBANPOP as Threshold
0 vs. 1  84.73 593.09 21.87
1 vs. 2  32.18 225.28 24.17
2 vs. 3  27.88 167.16 25.13
3 vs. 4 15.27 106.87 26.03
Panel C: For TRADE as Threshold
0 vs. 1  34.77 243.42 21.87
1 vs. 2  29.24 134.67 24.17
2 vs. 3  26.71 18.96 25.13
3 vs. 4 15.27 106.87 26.03

decreases HDI at the initial growth of tourism income, but it reverses at a higher level of tourism
income. Middle-income countries with GDPPC between 748 and 3,771 have an inverted U-shaped
relationship between HDI and tourism receipt. However, the coefficient values of both LTREC and
LTREC2 are not significant. This finding conveys that tourism income makes a positive contribu-
tion to HDI for these countries, but the influence starts decreasing and becomes negative at
higher levels of tourism income. For the higher income countries with GDPPC between 3,771
and 17,460 the relationship between HDI and LTREC is an inverted U-shape, but the very high-
income countries with GDPPC exceeding 17,460 have a U-shaped relationship between these var-
iables. A graphical plot of HDI versus TREC, for GDPPC less than 748, is provided in Figure 1,
where the non-linear relationship between the variables is observed.
Table 12 presents the equation relationship results using URBANPOP as the threshold param-
eter and reveals that the three optimum thresholds for this parameter are 32, 50, and 78. The
less urbanized countries exhibit a U-shaped relationship, similar to the low-income countries
(Panel A of Table 10). Thus, for the rural economies, the tourism receipt reduced HDI at the initial
12 M. CHATTOPADHYAY ET AL.

Table 11. Results of threshold regression using GDPPC as the threshold variable.
Variable Coeff S. Error p-value
Panel A: GDPPC < 748
LTREC 1.966 0.857 0.022 
LTREC2 0.048 0.024 0.049 
CONS 0.053 0.006 0.000 
GCF 0.047 0.015 0.002 
TRADE 0.066 0.004 0.000 
SCHOOLING 1.689 0.059 0.000 
LEXP 0.637 0.018 0.000 
Intercept 24.344 7.688 0.002 
Panel B: 748 < ¼ GDPPC < 3771
LTREC 0.917 0.924 0.321
LTREC2 0.016 0.023 0.480
CONS 0.041 0.006 0.000 
GCF 0.073 0.011 0.000 
TRADE 0.016 0.002 0.000 
SCHOOLING 2.609 0.054 0.000 
LEXP 0.607 0.016 0.000 
Intercept 16.334 9.205 0.076 
Panel C: 3771 < ¼ GDPPC < 17460
LTREC 5.457 1.339 0.000 
LTREC2 0.122 0.031 0.000 
CONS 0.059 0.010 0.000 
GCF 0.013 0.016 0.422
TRADE 0.025 0.003 0.000 
SCHOOLING 2.328 0.080 0.000 
LEXP 0.485 0.027 0.000 
Intercept 50.523 14.106 0.000 
Panel D: 17460 < ¼ GDPPC
LTREC 6.469 2.624 0.014 
LTREC2 0.151 0.057 0.008 
CONS 0.192 0.023 0.000 
GCF 0.088 0.037 0.018 
TRADE 0.005 0.003 0.093 
SCHOOLING 0.951 0.078 0.000 
LEXP 0.669 0.068 0.000 
Intercept 104.549 30.542 0.001 
2
R 0.9713
Adj. R2 0.9710
F-Stat 3451.877
P-Val. 0.000

Figure 1. Nonlinear relationship between HDI and tourism receipts.

level of tourism expansion. However, the relationship changes to an inverted U-shaped curve for
more urbanized economies. Table 13 presents the threshold regression results when trade open-
ness was used as the threshold parameter. The optimum thresholds are 52, 86 and 121.
 JOURNAL OF SUSTAINABLE TOURISM 13

Table 12. Results of threshold regression using URBANPOP as the threshold variable.
Variable Coeff S. Error p-value
Panel A: URBANPOP < 32
LTREC 0.846 0.888 0.341
LTREC2 0.027 0.024 0.267
CONS 0.019 0.007 0.004 
GCF 0.024 0.015 0.120
TRADE 0.047 0.004 0.000 
SCHOOLING 2.299 0.067 0.000 
LEXP 0.675 0.021 0.000 
Intercept 7.477 8.298 0.368
Panel B: 32 < ¼ URBANPOP < 50
LTREC 2.518 0.639 0.000 
LTREC2 0.047 0.017 0.005 
CONS 0.078 0.012 0.000 
GCF 0.087 0.016 0.000 
TRADE 0.018 0.005 0.000 
SCHOOLING 2.053 0.075 0.000 
LEXP 0.659 0.021 0.000 
Intercept 31.149 6.052 0.000 
Panel C: 50 < ¼ URBANPOP < 78
LTREC 1.260 0.784 0.108
LTREC2 0.016 0.018 0.384
CONS 0.093 0.008 0.000 
GCF 0.058 0.012 0.000 
TRADE 0.018 0.002 0.000 
SCHOOLING 2.580 0.059 0.000 
LEXP 0.660 0.020 0.000 
Intercept 21.290 8.180 0.009 
Panel D: 78 < ¼ URBANPOP
LTREC 3.443 2.641 0.192
LTREC2 0.101 0.058 0.081 
CONS 0.127 0.020 0.000 
GCF 0.025 0.036 0.479
TRADE 0.007 0.002 0.005 
SCHOOLING 1.112 0.086 0.000 
LEXP 1.177 0.062 0.000 
Intercept 10.132 31.094 0.745
R2 0.9678
Adj. R2 0.9674
F-Stat 3059.248
P-Val. 0.000

Countries with low trade openness (up to 121%) exhibit a U-shaped trajectory between HDI and
LTREC, and the situation reverses when the trade openness exceeds 121%.
The regression estimation can be inconsistent when there is an endogeneity problem.
Endogeneity arises when an independent variable used in the regression is correlated with the
error term, thus violating the most important exogeneity condition of the OLS estimation (Lu
et al., 2018; Ullah et al., 2018, 2020). We validated the exogeneity of the regressors by checking
it with the correlation of the error term. For this purpose, we saved the error terms of the thresh-
old regression and estimated the Pearson correlation coefficients of the regressors with the
regression residuals. The correlation matrix in Table 14 shows that none of the regressors signifi-
cantly correlate with the errors. Therefore, the estimates of the threshold regressions are consid-
ered to be unbiased and consistent.

Discussion
The cointegrated relationship between HDI and the other variables in Equation (2) are produced
in Table 8. In contrast with a few previous studies, we find that the tourism receipt shows a
negative relationship with HDI, but it is insignificant. Therefore, the results with the full sample
14 M. CHATTOPADHYAY ET AL.

Table 13. Results of threshold regression using TRADE as the threshold variable.
Variable Coeff S. Error p-value
Panel A: TRADE < 52
LTREC 3.334 0.523 0.000 
LTREC2 0.108 0.013 0.000 
CONS 0.229 0.017 0.000 
GCF 0.301 0.022 0.000 
TRADE 0.020 0.012 0.091 
SCHOOLING 2.071 0.056 0.000 
LEXP 0.737 0.021 0.000 
Intercept 35.242 5.672 0.000 
Panel B: 52 < ¼ TRADE < 86
LTREC 0.706 0.566 0.213
LTREC2 0.033 0.014 0.021 
CONS 0.083 0.009 0.000 
GCF 0.040 0.015 0.007 
TRADE 0.070 0.011 0.000 
SCHOOLING 2.445 0.063 0.000 
LEXP 0.776 0.020 0.000 
Intercept 13.588 5.782 0.019 
Panel C: 86< ¼ TRADE < 121
LTREC 2.833 1.289 0.028 
LTREC2 0.085 0.032 0.008 
CONS 0.101 0.012 0.000 
GCF 0.146 0.017 0.000 
TRADE 0.006 0.014 0.688
SCHOOLING 2.761 0.084 0.000 
LEXP 0.643 0.028 0.000 
Intercept 22.657 13.073 0.083 
Panel D: 121 < ¼ TRADE
LTREC 5.691 1.231 0.000 
LTREC2 0.129 0.030 0.000 
CONS 0.034 0.006 0.000 
GCF 0.074 0.018 0.000 
TRADE 0.022 0.003 0.000 
SCHOOLING 2.549 0.086 0.000 
LEXP 0.609 0.032 0.000 
Intercept 65.502 12.025 0.000 
R2 0.9627
Adj. R2 0.9623
F-Stat 2630.597
P-Val. 0.000

did not produce a convincing relationship between HDI and tourism. However, the variables rep-
resenting trade, the mean years of schooling, and life expectancy show a significant relationship
with the HDI score. According to this result, the effect of these variables is more important than
the impact of tourism.
To better assess this relationship, we considered that the relationships of HDI with its determi-
nants depend on countries’ socio-economic characteristics. We took three threshold parameters
to split the whole dataset into several subsets depending on the parameters’ value. First, we
used per capita GDP as the classifying parameter and measured the relationship of HDI with its
determinants using the threshold regression approach of Hansen (1999). This process classified
the whole sample into four subsets based on per capita GDP. The results of the threshold regres-
sion listed in Table 10 reveal that tourism receipt has different relationship with HDI depending
on the level of per capita GDP. This study’s main realization is that the HDI measures of countries
with a low per capita GDP are negatively affected by tourism growth. Similarly, different types of
relationships are found when the trade openness and urban population are used as threshold
variables to split the entire dataset into subsamples.
To analyze the relationship between HDI and TD better, the study formed five hypotheses.
The first hypothesis analyzes whether the HDI of a country depends on the level of TD. The
 JOURNAL OF SUSTAINABLE TOURISM 15

Table 14. Correlation between variables and residuals of threshold regression.

GDPPC URBANPOP TRADE
RESID1 RESID2 RESID3 LTREC CONS GCF TRADE SCHOOLING LEXP
RESID 1.00 1.00 1.00
(n.a.) (n.a.) (n.a.)
LTREC 4.04E-14 1.90E-14 6.84E-15 1.00
(1.00) (1.00) (1.00) (n.a.)
CONS 1.19E-15 6.11E-15 1.90E-14 0.43 1.00
(1.00) (1.00) (1.00) (0.00) (n.a.)
GCF 7.33E-16 2.37E-15 5.37E-15 0.06 0.27 1.00
(1.00) (1.00) (1.00) (0.00) (0.00) (n.a.)
TRADE 4.65E-16 1.58E-15 9.65E-16 0.01 0.13 0.26 1.00
(1.00) (1.00) (1.00) (0.41) (0.00) (0.00) (n.a.)
SCHOOLING 5.81E-15 1.97E-14 1.01E-14 0.71 0.28 0.04 0.14 1.00
(1.00) (1.00) (1.00) (0.00) (0.00) (0.03) (0.00) (n.a.)
LEXP 1.35E-14 4.91E-15 7.21E-15 0.73 0.32 0.14 0.17 0.82 1.00
(1.00) (1.00) (1.00) (0.00) (0.00) (0.00) (0.00) (0.00) (n.a.)
Note: GDPPC RESID1, URBANPOP RESID2 and TRADE RESID3 are the residual series of threshold regression models respectively
for with GDPPC, URBANPOP and TRADE used as the threshold variable.
The figures represent the Pearson correlation coefficient with p-value of the coefficient shown in brackets. It is found that
the correlation coefficient of residuals with regressors are close to zero and hence it can be concluded that there is no
correlation between regressors and the residuals of the threshold equation and thus the models do not suffer from the
endogeneity problem.

whole samples’ regression results reveal that the relationship between the variables is insignifi-
cant. The threshold regression indicates that a significant relationship exists for certain countries
based on their economic profile.
The second hypothesis evaluates the linearity assumption between the HDI and TD. When dif-
ferent threshold parameters were used, different types of non-linear relationships (both U-shaped
and inverted U shaped) were established for different threshold ranges, as shown in Tables 10,
11, and 12.
The remaining hypotheses were used to test the relevance of using per capita GDP, urbaniza-
tion levels, and trade openness as threshold parameters to split the whole dataset into subsam-
ples. The importance of thresholds is established, and the significance levels for different
regression coefficients and threshold ranges (Tables 10, 11, and 12) reject the null hypotheses
H30, H40, and H50. The threshold test confirms that the HDI and TD relationship depends on
country-specific economic characteristics, such as per capita GDP, urbanization level, and
trade openness.
The study’s theoretical proposition is that the relationship between human development and
tourism is a complex phenomenon and depends on the country’s socio-economic characteristics.
Grouping all countries together will average out signals of countries with different economic sit-
uations. The study could not find a reasonable explanation to relate HD with TD for the whole
dataset. The nuances of the relationship are exposed when the countries are clustered depend-
ing on their specific characteristics. The threshold regression approach used in the study was
quite helpful for this purpose. This result confirms that the HDI and TD relationship depends on
country-specific socio-economic features, such as per capita GDP, the level of urbanization, and
trade openness.

Conclusions and implications

This study examines the connection between TD and HDI. Using a full sample of 133 countries
for 24 years, it finds that the nexus between TD and HDI for the entire dataset is not highly con-
vincing. Tourism development has a positive effect on HDI only at the 10% level of significance.
Furthermore, the nature of the relationship depends on the current status of development of
the countries. The study used a threshold regression framework to split the dataset based on
16 M. CHATTOPADHYAY ET AL.

per capita GDP, urbanization level, and trade openness. We found four different situations in the
relationship between tourism and HD. The most prominent finding is the U-shaped relationship
between tourism growth and HD, where the growth of tourism in low-income countries does
not improve HD in the early stages of tourism growth; rather, HD tends to decline. Thus, it can
be concluded that tourism does not typically cause HD, particularly in the developing world.
This U-shaped pattern for low GDPPC countries is similar to the findings of Croes et al. (2021)
in the relationship between TD and HD for Poland’s transition economy. The reason for the U-
shaped curve for HDI is explained as follows. Although tourism creates additional jobs and
enhances household income, an individual’s additional income is less linked to health and educa-
tion, as these sectors’ infrastructure is more connected with government allocation. The govern-
ment allocates a part of tourism revenue to invest in health, education, and infrastructure. Thus,
its effect on overall HD is not felt at the initial levels of tourism growth. With increased tourism,
the government’s income also increases, and the development focus on education and health
also increases, which in turn increases the HDI. The negative aspect that characterizes the rela-
tionship between TD and HDI suggests that low per capita GDP countries cannot match the
human resources for the new tourism-related challenges. However, the sign of the squared term
of tourism growth is positive, which indicates that the labor market’s mismatch and inflexibility
in resource mobilization are corrected with more income from tourism.
The development of rural and underprivileged communities remains a crucial challenge for
any development plan. Large businesses overshadow the tourism business in high-income coun-
tries and pose barriers for local people’s entry. Therefore, focused attention needs to be given to
ensure that tourism benefits go to the poor. Although tourism growth increases jobs and income
for the poor, the major benefits are cornered by people with more capital and higher resources
and organizing abilities. The inverted U-shaped curve for middle-income and high-urbanized
countries is explained as follows: in a developed society with better social and market structures,
the benefits of higher tourism income are shared by the local population and are used to
improve social development measures, at least in the initial levels. Nevertheless, when tourism
income becomes high, it attracts prominent players from outside, who opt for a high level of
mechanization, building costlier resorts and recruiting highly-skilled people. Consequently, the
benefits of the increased tourism income are siphoned by them, and the small and marginal
tourism operators go out of business, thus causing a decline in the HDI for locals.
Studies have found that higher public spending on societal development increases HD. Since
the beginning of this century, spending on social development has increased substantially, which
shows that national income distribution promotes HD as resources are allocated for health edu-
cation and essential utility services. The countries in the development stage need financial sup-
port for these plans, and an increase in tourism revenue can augment resources for spending in
these areas and thereby improve HD. The analysis demonstrates that the coefficients of CONS
are positive in most of the cases. The results confirm that public consumption is conducive to
HD. As expected, the GCF, TRADE, and URBANPOP measures positively correlate with the HDI in
most truncated segments and in the full sample.
The non-linear panel threshold model’s estimation shows differences in the relationships for
different ranges of threshold variables. Therefore, each country needs to develop appropriate
tourism and business policies based on their current threshold parameter value to promote HD.
The two contradicting prospects of the U-shaped and inverted U-shaped relationships between
HD and tourism necessitate the careful implementation of tourism expansion policies.
This study attempted to find the non-linear impact of tourism expansion on the HDI and cap-
tured a subset of the SDGs using a panel threshold regression model. Similarly, non-linear influ-
ences of tourism on other SDGs can also be ascertained. This analysis considered a large number
of countries in a panel dataset. Since the study finds that the nexus between HDI and TD are
affected by country-specific factors, it would be appropriate to conduct future research for clus-
ters of countries with similar social and economic characteristics. The tourist arrival from
 JOURNAL OF SUSTAINABLE TOURISM 17

adjoining countries also influences tourist flow on account of the spillover effect. Therefore, ana-
lyzing a group of countries in a particular geographical cluster can provide focused results.
Another limitation of the paper is that it uses the composite HDI value from the United Nations
Development Programme’s website, and exploring the relationship of TD with HDI constituents
can disclose better insights. The use of threshold regression to examine the differential impact of
tourism on various aspects of HD opens a vast scope for further research.

Acknowledgements
We are thankful to Professor Xavier Font, Editor in chief of the journal, and anonymous reviewers for their con-
structive comments, which enhanced the article’s presentation and content.

Disclosure statement
No potential conflict of interest was reported by the author(s).

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