Abstract

Keywords

۱٫ Introduction

۲٫ Background

۳٫ Data and empirical approach

۳٫۱٫ Tourism

۳٫۲٫ Worldwide governance indicators

۳٫۳٫ Other explanatory variables

۳٫۴٫ Econometric approach

۴٫ Results

۴٫۱٫ The synthetic index:

۴٫۲٫ The six dimensions of governance

۵٫ Robustness checks

۶٫ Conclusion

Declaration of Competing Interest

Appendix A. Supplementary data

References

Vitae

Abstract

No effort has been made to connect good governance and the performance of the tourism industry at the country level. We take a first step to provide empirical evidence of this positive effect. Based on a data set of 100 countries between 2002 and 2012, the impact of the Worldwide Governance Indicators (WGI) on the tourism industry is analyzed, controlling also for demographic, economic and environmental factors. Using a dynamic panel data approach, we highlight the role played by good governance in explaining differences in countries’ tourism performances, measured here as inbound tourism expenditures per inhabitant. We also observe that the impact of WGI is even higher among low-openness countries.

۱٫ Introduction

An important strand of research focuses on the role of institutions and economic freedom in explaining observed differences in economic development and performance. Essentially, the economic literature has moved from inputs and technological perspectives to a broader understanding of the prerequisites for growth (Gwartney et al., 1999). Good governance is needed to assure (Dixit, 2009) property right security, contract enforcement, and collective action. As discussed by Khan (2007), the positive impact of good governance arises mainly from two sources. First, it reduces transaction costs, allowing markets to work more efficiently. Second, good governance allows markets to “overcome entrenched market failures in allocating assets, acquiring productivity-enhancing technologies and maintaining political stability in contexts of rapid social transformation”. Recently, using a US state-level/city-level cross-sectional dataset, Detotto and Mccanon (2017) show that good institutions positively affect the development of efficient publicly provided services. Thus, it seems that good governance impacts both market and non-market activities.