Tourism and economy: When growth starts to slow down

Purpose: This study investigates whether tourism’s involvement to economic growth shows diminishing returns past a certain threshold and seeks to identify the point at which this transition occurs. Specifically, it examines whether the part of tourism in the economy eventually leads to reduced incremental gains for overall growth. Methods: A balanced panel threshold regression model is applied to data from 30 OECD countries spanning from 2008 to 2020. The analysis aims to clarify the association among tourism’s economic share and aggregate economic growth. Results: The findings indicate that tourism significantly stimulates economic growth up to a defined threshold, after which the marginal benefits decline. This threshold is estimated at approximately 4.68. Below this value, a one-unit increase in tourism’s share of the economy is connected with an average rise in economic growth of 3.5 percentage points. Beyond this threshold, the corresponding effect decreases to approximately 2.74 percentage points per additional unit. Implications: The results suggest that excessive reliance on tourism does not guarantee sustained economic growth. Expanding tourism beyond a certain level may generate negative externalities such as congestion, environmental degradation, and social costs that can offset economic gains. Accordingly, for stable and sustainable development, countries should pursue a balanced growth strategy that integrates tourism with other sectors.