Institutional Determinants of Tourism Development: The Case of Developing Countries

Abstract

It is an undeniable fact that a decline in the tourism revenues especially liquidity flow provided from tourism, which has occurred as a result of the ongoing coronavirus pandemic, is an important reason for the economic recession that has been experienced all over the world. In such a framework, the determinants of the tourism sector development are brought on the agenda again. Besides the widespread determinants of the tourism development such as economic growth, climate conditions, geography, political and international relations, there are elements that contemporarily discussed to have a notable impact on the development of the sector; the institutions which are widely defined as the legal framework in which political and economic decisions are taken. In this framework, using the linear regression model with OLS estimators, for 81 developing countries, the study tests whether institutional quality has a statistically significant impact on tourism development which is measured with international tourism receipts. To measure institutional quality, the study employs firstly the governance variables which are political stability and rule of law, and HDI and trade openness, which are accepted to be strongly correlated with institutional structure as secondary institutional variables. The results indicate that trade openness, rule of law, and human development index have a positive effect on tourism receipts as expected, while political stability has no statistically significant impact on it. The paper concludes that progressive institutional quality has a positive influence on tourism development in developing countries.