Nonlinear nexus between corruption and tourism arrivals: a global analysis
Journal
Empirical Economics Journal
Date Issued
January 2022
DOI
10.1007/s00181-021-02193-2
Abstract
The relationship between corruption and tourism has been sporadically examined over
the years. According to the existing theory, there is an inverted U relationship which
implies that tourism demand initially increases as corruption increases (greasing the
wheels) and after a certain threshold level of corruption, tourism demand decreases
(sanding the wheels). Empirical studies so far concentrated on capturing the nonlinear relationship, by applying a simple linear model and by including corruption as
a quadratic term. In the current paper, the authors revisit the “greasing and sanding
the wheels” hypothesis by applying an advanced econometric technique, the threshold regression model, which deals with a key element of model uncertainty, namely
parameter heterogeneity. In particular, using a sample of 83 countries from 2001 to
2018, the authors firstly examine if there is a nonlinear relationship between corruption
and tourism, and then, they estimate the threshold value of corruption. According to
the results, the null hypothesis of a linear model against the alternative of a threshold
model with two regimes is strongly rejected. Furthermore, while the effect of corruption on tourism is positive in the low corruption regime and negative in the high
corruption regime, a heterogeneous relationship is also found between other politicosocio-economic variables and tourism demand in the low and high corruption regimes.
the years. According to the existing theory, there is an inverted U relationship which
implies that tourism demand initially increases as corruption increases (greasing the
wheels) and after a certain threshold level of corruption, tourism demand decreases
(sanding the wheels). Empirical studies so far concentrated on capturing the nonlinear relationship, by applying a simple linear model and by including corruption as
a quadratic term. In the current paper, the authors revisit the “greasing and sanding
the wheels” hypothesis by applying an advanced econometric technique, the threshold regression model, which deals with a key element of model uncertainty, namely
parameter heterogeneity. In particular, using a sample of 83 countries from 2001 to
2018, the authors firstly examine if there is a nonlinear relationship between corruption
and tourism, and then, they estimate the threshold value of corruption. According to
the results, the null hypothesis of a linear model against the alternative of a threshold
model with two regimes is strongly rejected. Furthermore, while the effect of corruption on tourism is positive in the low corruption regime and negative in the high
corruption regime, a heterogeneous relationship is also found between other politicosocio-economic variables and tourism demand in the low and high corruption regimes.
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