Investigating the Impact of Tourism Demand on Financial Development, Focusing on Their Interactive Effects on the GDP Per Capita Growth in Iran

Understanding the relationship between financial development and tourism activities is crucial to attracting investment and promoting sustainable growth. Tourism expenditures and international tourist arrivals as components of tourism demand affect economic growth directly or through their influence on financial development.

Design/methodology/approach: 

Using the Autoregressive Distributed Lag Model (ARDL) for the data on Iran's economy from 1995 to 2018, we examined the relationship between tourism demand and the level of financial development. Then, we investigated the impact of financial development on the relationship between tourism demand and GDP per capita growth.

The results indicated a positive and significant relationship between tourism demand and financial development: For one percent growth of tourism expenditures, the financial development increases by 0.3425 percent. A one percent rise in the arrival of international tourists leads to a 0.609 percent increase in financial development. The interactive effect of financial development and tourism expenditures on the growth of per capita production is 0.408, which is statistically significant. Therefore, we can argue that enhancements in financial development strengthen the effect of tourism expenditure on GDP per capita growth.

The results are consistent with the tourism-led growth hypothesis and suggest authorities can improve economic growth by strengthening the tourism sector and financial development.

Originality/value:

 Paying attention to the impact of tourism demand indicators on financial development, besides their interactive effect on the growth of per capita production, covers the existing study gap and is considered the advantage of the present study.