Impacts of Tourism Development on Economic Growth, Poverty Alleviation, and Environment: Evidence from Tanzania

Impacts of Tourism Development on Economic Growth, Poverty Alleviation, and Environment: Evidence from Tanzania

Tourism development is increasingly accepted as a strategy to improve economic growth and to reduce poverty levels in developing countries. The prospects of poverty alleviation through tourism growth have lately attracted a lot of debate, interest in scholarly research, and policy formulations. For instance, despite the limited research findings on economic benefits of tourism in Tanzania, the country's policymakers have added the tourism sector to the list of important economic sectors to spearhead economic growth and poverty alleviation.

This thesis investigates the impact of tourism development on economic growth, poverty alleviation, and the environment in Tanzania. The thesis reviews both theoretical and empirical literature on pro-poor tourism, tourism-led growth hypothesis, growth-poverty nexus, and the impacts of tourism growth on the environment. While the thesis is based on paper format and each paper is self-contained and has independent stand, when put together the papers form one complete thesis addressing the broad research objectives. To determine whether there is a long-term relationship between the proceeds from the tourism sector and economic growth, the study used Granger Causality technique, Wald test, and Impulse Response Function in assessing time series data on international tourism revenue, real gross domestic product, and real effective exchange rate. Likewise, to investigate the impact of tourism growth on the quality of the natural environment, the study employed Autoregressive Distributed Lag (ARDL) Bounds Testing approach, Vector Error Correction Model and Granger Causality test in analyzing time series data on ecological footprint, tourism receipts, primary energy consumption, urban population, and trade openness. The vector autoregressive model (VAR) and Impulse Response Function were employed to assess the relationship between tourism growth and population wellbeing using annual data on tourism development, agricultural growth, and per capita household final consumption expenditure. The nonlinear autoregressive distributed lag (NARDL) model and Wald test approach was employed to explore the causality and long-run asymmetry between consumption expenditure and economic growth using annual time-series data on per capita consumption expenditure, real gross domestic product, GINI index and unemployment. Subsidiary estimation techniques such as Augmented Dickey-Fuller test and Phillips-Perron test (for unit root tests), Johansen and Juselius test (for co-integration test), Wild Bootstrap (for checking the accuracy of computed statistics), etc., were applied at various stages of the estimation process.

The study confirms a unidirectional causality from tourism development to economic growth and from tourism development to population wellbeing. Thus, tourism development causes economic growth and alleviates consumption deprivation significantly. Further, international tourism revenue and trade openness compacts environmental damages, while urbanization and energy consumption aggravate environmental damages. As for the impact of economic growth on poverty, the study confirms the presence of long-run asymmetric behavior of economic growth, while the Granger causality supports a short-run feedback hypothesis between economic growth and consumption expenditure, and unidirectional causality from unemployment and income inequality to consumption expenditure. In the long run, unidirectional causality was observed from consumption expenditure to unemployment and income inequality. Overall, the growth-poverty nexus in Tanzania is such that although economic growth exhibits poverty reduction features, it is not sufficient to alleviate consumption poverty because the interaction of income inequality with economic growth dampens the poverty-reducing effects of economic growth. The study opens new policy perspectives with wide international relevancy as outlined in the thesis.

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