Output Volatility and Tourism Specialization in Small Island Developing States

This paper investigates the relationship between tourism specialization and output volatility in a sample of 34 small island developing states (SIDS). The initial results suggest that there is a positive relationship between tourism and output volatility. Then, to test whether or not the impact of tourism is uniform across SIDS, the author divides the sample of SIDS by their regional groupings. The positive relationship between tourism specialization and volatility seems to be isolated to states in the Asia and Pacific region; that is, the region with the lowest level of tourism specialization on average. However, an evaluation of the fluctuations in tourism receipts indicates that the average volatility of tourism is highest in this region. This implies that the impact of tourism on economic volatility depends greatly on the level of volatility in tourism and, to a lesser extent, on the level of specialization.