The effects of national and international tourism on income inequality: evidence from Asia-Pacific economies

• Date: 24 July 2023
• Pages: 1-22
• DOI: https://doi.org/10.1108/EDI-09-2022-0259
• Published date: 24 July 2023
• Author: Sudharshan Reddy Paramati,Thanh Pham Thien Nguyen

The effects of national and

international tourism on income

inequality: evidence from

Asia-Pacific economies

Sudharshan Reddy Paramati

School of Business, University of Dundee, Dundee, UK, and

Thanh Pham Thien Nguyen

School of Business, James Cook University Australia-Singapore Campus,

Singapore, Singapore

Abstract

Purpose –This paper explores the effect of tourism (national and international) indicators on income

inequality in a sample of 21 Asia Pacific economies.

Design/methodology/approach –This study uses panel data set from 1995 to 2020 and employs panel

autoregressive distributed lag (ARDL) method for the empirical investigation.

Findings –The empirical findings from the panel ARDL models suggest that all of the considered tourism

indicators have significant negative impacts on income inequalities. The results remain consistent with

alternative indicators and methods.

Social implications –The findings of this study will be critical for the policymakers to take effective

measures to reduce the income inequality. Such measures could include promoting tourism in general, focusing

on attracting international tourists or domestic tourists, and putting more weight on developing leisure or

business tourism, which will boost the overall economic performance and alleviates inequalities in the society.

Originality/value –This is the first study to consider various forms of tourism indicators to see their impact

on income inequality in the Asia–Pacific region, and offers important implications for the policy actions.

Keywords Tourism indicators, Financial development, Per capita income, Trade openness,

Income inequalities, Asia Pacific region

Paper type Research paper

1. Introduction

Tourism has been widely acknowledged as one of the key drivers for economic growth

(Li et al., 2016;Faisal et al., 2021;Rasool et al., 2021) and unemployment reduction (Banerjee

et al., 2015;S

anchez, 2019). According to the World Travel and Tourism Council (WTTC) [1],

the growth of the tourism sector prior to the Covid-19 pandemic (2019) (3.5%) is greater than

that of the global economy (2.5%) and many other major sectors such as manufacturing and

retail. In total, tourism contributed US$8.97tn (10.3% of global GDP) and supported 330

million jobs, equivalent to 1 in 10 jobs in the global economy. In the tourism industry, various

businesses from different sectors, including accommodation, food and beverage, retail trade,

transportation, and cultural sports and recreation work together to make a tourism service

available to a potential tourist. This indicates that tourism can have influences on many

sectors, and hence can transmit welfare across people, households, regions and even nations.

Nevertheless, the growth of an economy cannot be sustainable if the benefits generated by

tourism are transmitted more to the rich than the poor, since income inequality can have a

wide range of negative impacts on health and well-being (Luo and Xie, 2020;Tibber et al.,

2022;Huang, 2019), national social cohesion (Tadjoeddin et al., 2021;Anser et al., 2020) and

poverty alleviation (Chotia and Rao, 2017). Therefore, it is very important to look at the

tourism development and income inequality nexus.

Effect of

tourism on

income

inequality

1

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/2040-7149.htm

Received 12 September 2022

Revised 1 February 2023

25 April 2023

Accepted 11 May 2023

Equality, Diversity and Inclusion:

An International Journal

Vol. 43 No. 1, 2024

pp. 1-22

© Emerald Publishing Limited

2040-7149

DOI 10.1108/EDI-09-2022-0259

Theoretically, tourism can have a positive or negative impact on income inequality. For

example, tourism development enhances local economic activities and drives up the living

cost (e.g. higher property prices and inflation) (Bowden, 2005), which could increase the

percentage of families struggling to make ends meet. Moreover, if job creation by tourism is

mainly for skilled workers (e.g. language, customer service and technology) who are mostly in

the above-average or average income groups, income gap would be wider. Also, tourism

industry tends to be dominated by multinational conglomerates as they are well known for

better services and stronger finance (Schilcher, 2007). This domination may be destructive to

local businesses which rely on less skilled workers, depleting jobs for less skilled workers and

widening income gap. However, if tourism development can engage the poor in the

production of tourism goods and services or if the redistribution of tourism tax aims at

supporting the poor (e.g. on/off-the-job training projects), such pro-poor impacts of tourism

development could help reduce income inequality.

The literature on tourism and income inequality can be classified into three groups based

on the context of investigation: (1) a single province (e.g. Truong et al. (2014),Banerjee et al.

(2015),Nguyen and Funck (2019) and Qin et al. (2019)) or a country (e.g. Incera and Fern

andez

(2015),Mahadevan et al. (2016) and Shahbaz et al. (2020)), (2) multi-countries (e.g. Proença and

Soukiazis (2008),Nguyen et al. (2021),Zhang (2021) and Subramaniam et al. (2022)) and

(3) multi-provinces within a country (e.g. Goh et al. (2015),Li et al. (2016) and Zhang (2022)).

It is observed that the studies in groups (1) and (2) document mixed evidence on the

contribution of tourism to the alleviation of income inequality, and the studies in group 2

utilize a global sample or a group of countries with similar economic income or income

inequality levels. Nonetheless, the multi-province studies (i.e. group 3) consistently report the

contribution of tourism to a more even provincial distribution of income. This is explained by

the fact that competition in tourism between provinces within a country has reallocated the

tourism revenue in a way that brings more benefits to poorer provinces. Given that, this

triggers for a broader investigation of whether tourism competition between the countries

within the Asia–Pacific region can assist for the redistribution of tourism revenue in a way

that brings more benefits to the poorer countries.

Asia Pacific region represents the countries from East Asia, Southeast Asia and Oceania.

The Asia–Pacific region possesses distinctive natural attributes, such as rainforests, coral

islands, beaches and charismatic animals, which provide a strong exotic image to tourists

(Frost et al., 2014). In 2019, the Asia–Pacific region experienced the fastest growth in travel

and tourism, with a 5.5% increase. This growth was driven by the rising number of middle-

income households, favourable visa policies, improved connectivity and the government’s

emphasis on the tourism sector. Also, this region is posed to be the focus of world tourism in

the future (Tolkach et al., 2016;Yeoman and Beeton, 2014). Despite this development of

tourism, Asia Pacific experiences a high level of income inequality, with the average Gini

index in 2020 of around 43.15 points. Figure 1 shows the yearly change in income inequality

index and the five tourism development indicators in the Asia Pacific region over the

Figure 1.

Yearly change in Gini

index and five tourism

development

indicators

EDI

43,1

2