Tourism and Poverty Reduction: An Economic Sector Analysis for Costa Rica and Nicaragua

Abstract

This study examines the existence of a long-run relationship between indigence or extreme poverty reduction and agricultural, manufacturing and tourism development in Costa Rica and Nicaragua. An econometric methodology consisting of an autoregressive distributed lag bounds testing approach to co-integration is used. For Costa Rica, agricultural and manufacturing (not statistically significant) and tourism development are negatively related to indigence poverty with estimated elasticity values of −0.50 for agriculture, −0.17 for manufacturing and −0.58 for tourism. For Nicaragua, the estimated elasticity values are −0.40 for agriculture, −0.13 for manufacturing (not statistically significant) and −0.64 for tourism. Tourism's rate of poverty reduction was statistically significantly greater than that of agriculture for both countries. The main contribution of this paper lies in the understanding of sector contributions to alleviating poverty. The methods utilized can be undertaken by most countries in the world, thereby providing insights into developing targeted investment policies and strategies to achieve higher rates of poverty reduction.

Tourism and Development in Developing Economies: A Policy Implication Perspective

“…Tourism development indicates a significant relationship with agriculture; to the best of our knowledge, the literature is silent on the econometric relationship between tourism and agriculture. The findings further suggest that tourism has a significant negative relationship with poverty, therefore our results are similar to those of Vanegas Sr, Gartner [36] in Costa Rica and Nicaragua.…”

“…The literature on the empirical investigation between tourism and agriculture development is quite silent. In a multivariate analysis using ARDL and the Granger causality mechanism, Vanegas Sr, Gartner [36] suggested a unidirectional causality running from tourism development to agriculture development in Costa Rica and Nicaragua, proposing that tourism leads to agriculture development. Scholars have suggested that tourism increases the demand for local food products, which provides support for agriculture development, hence increases the economic multiplier effects [37].…”

“…Croes and Vanegas [16], in a multivariate analysis of economic growth, poverty reduction, and tourism using the Engle and Granger [39] co-integration approach, found that tourism development helped to reduce poverty in Nicaragua. Vanegas Sr, Gartner [36], in a multivariate framework and applying the ARDL mechanism, reported that tourism development caused poverty reduction in developing countries. Vanegas and Croes [6], in a multivariate investigation of capital investment, human capital, economic growth, poverty, tourism, and export, by using the Johansen and Juselius [40] and Johansen [41] approach to co-integration, found that tourism significantly Granger-causes poverty.…”

“…In the long run, a 1% increase in tourism enhances agriculture development by 0.26%, and tourism Granger-causes agriculture development. Vanegas Sr, Gartner [36] argued that the rapid decline in poverty in Nicaragua was mainly driven by high agricultural export and tourism development. The literature reveals that tourism development increases the demand for local food and hence enhances the economic multiplier effects [37].…”

Tourism and Development: Land Acquisition, Achievement of Investment and Cultural Change (Case Study Tourism Industry Development in Batu City, Indonesia)

“…Furthermore, the contribution of the tourism sector to both the world GDP and the provision of employment is increasingly high (Eugenio-Martin et al, 2008). In addition, the tourism sectors have also contributed to reduce the amount of poverty as it did in Costa Rica and Nicaragua (Vanegas et al, 2015). Further, on a more micro scale, tourism has contributed to engage the indigenous peoples in the search for development options (Capucci, 2016).…”