Tourism productivity and economic growth

This study examines the transmission mechanism between tourism productivity and economic growth, using Spain as an empirical setting. By relaxing the assumption of diminishing return of capital, new growth theory is integrated into the Bayesian dynamic stochastic general equilibrium model for the first time in the tourism literature. The results demonstrate the impact of tourism productivity on economic growth and illustrate the spill-over effects between tourism and other sectors caused by the externalities of physical and human capital and public services. The simulation results further disclose that when the productivity of overall economy improves, inbound tourism demand expands more than domestic tourism demand, whereas when the productivity of tourism sector improves, domestic tourism consumption increases more than inbound tourism consumption. •The transmission between tourism productivity and economic growth is examined.•The Bayesian dynamic stochastic general equilibrium model is utilized.•Total productivity improvement encourages more inbound than domestic tourism demand.•Tourism productivity improvement promotes more domestic than inbound tourism demand.