Modelling the interaction between Tourism, Energy Consumption, Pollutant Emissions and Urbanization: Renewed Evidence from Panel VAR.

Abstract

In less than two decades, the global tourism industry has overtaken the construction industry as one of the bigger polluters, accounting for up to 8% of global greenhouse gas emissions as reported by the United National World Trade Organization (UNWTO, 2018). This position resonates the consensus of the United Nations Framework Convention on Climate Change (UNFCCC). Consequently, research into the causal link between emissions and the tourism industry has increased significantly focusing extensively on top earners from the industry. However, few studies have thoroughly assessed this relationship for small island economies dependent on tourism. Hence, this study assessed the causal relationship between CO2 emissions, real GDP per capita (RGDP) and the tourism industry. The analysis is conducted for seven tourism-dependent countries for the period 1995 to 2014 using a panel VAR approach, with support from FMOLS and PMG-ARDL models. Unit root tests confirm all variables are stationary at first difference. Our VAR Granger causality/block exogeneity Wald tests results show that a unidirectional causality flowing from tourism to CO2 emission, RGDP, and energy consumption, but a bi-directional causality exists between tourism and urbanization. This implies that in countries that depend on tourism, the behaviour of CO 2 emission, RGDP, and energy consumption can be predicted by the volume of tourist arrivals, but not the other way around. The impulse response analysis also shows that the responses of tourism to shocks in CO 2 appear negative within the 1 st year, positive within the 2nd and 3rd year but revert to equilibrium in the 4th year. Finally, the reaction of tourism to shocks in energy consumption is similar to its reaction to shocks in RGDP. Tourism responds positively to shocks in urbanization throughout the periods. These outcomes where resonated by the Dumitrescu and Hurlin causality analysis where the growth induced-tourism hypothesis is validated as well as feedback causality observed between tourism and pollutant emission, urbanization and pollutant emission in the blocs over the sampled period. Consequently, this study draws pertinent energy and tourism policy implications for sustainable tourism on the panel over their growth trajectory without compromise for a green environment.Keywords: Energy Consumption; GDP; Tourism; Impulse response; Variance decomposition.