The review of linearity of tourism led growth hypothesis: Dynamic panel threshold model

The aim of this study is to examine the effects of tourism specialization on economic growth and to test the validity of the tourism-based economic growth hypothesis. In addition, it has been tried to find an answer to the question of the intermediary role of financial development in explaining the relationship between specialization in tourism and economic growth, and how these effects change over time in countries classified according to different financial development levels. For these purposes, Arellano and Bover/ Blundell and Bond System Generalized Moment Method, which is thought to have the most successful predictive power, and the dynamic panel threshold model developed by Kremer, Bick and Nautz were used to examine the relationship among 91 countries for the period of 2001-2018. In line with the research findings, it is indicated that in the classification made by considering the level of financial development in selected countries, specialization in tourism will support economic growth up to a certain level. Another important result is that the effects of financial development on economic growth will only become significant after reaching a certain level of financial development, and thus no relationship can be detected in countries with low and medium financial development levels. Therefore, it has been determined that the effects of both tourism specialization and financial development on economic growth are not linear. While the effects of tourism are statistically positive and significant at the level of low financial development, where economic resources are predominantly directed to the tourism sector, in the interpretation made in terms of coefficients, it has been determined that the effect of tourism on growth is stronger at the level of medium financial development. However, the fact that the effects of the increase in tourism specialization on growth at the level of high financial development become meaningless shows that the effects of tourism on growth will disappear over time. Developments in the financial system facilitate access to finance in tourism, as in other sectors, and reduce investment costs, thus supporting the supply-led growth model. However, the fact that the effects of both tourism and financial development on growth vary at different levels of financial development, making it more important to understand the dynamics underlying the relevant differences. It is thought that the differences between the groups may be due to the fact that the economic, social, and environmental effects of tourism specialization may change over time, as a result of the diminishing returns assumption or as a result of the structural deteriorations caused by excessive financial development in private sectors, as revealed in some studies. In this respect, the results of the research impose import duties and responsibilities on decision-makers, especially in tourism-dependent economies, and show that the tourism-led growth hypothesis will be realized through alternative tourism strategies or if other sectors dynamics that tourism has strong ties will be analyzed carefully.