A Panel Data Analysis of the Effect of Corruption on Tourism
ACRN Research Correspondent Brigitte Zimmerman reviews an article by Marie Poprawe that considers how corruption may be affecting tourism.
Marie Poprawe examines the extent to which corruption affects tourism. Through comprehensive empirical analysis using Transparency International and UN World Tourism Organization, she demonstrates that perceived corruption negatively affects tourist inflows. Her analysis is comprehensive and she contributes to a nascent literature on the determinants of tourism.
One laudable feature of this work is Poprawe’s appropriate use of Transparency International’s Corruption Perception Index. As she notes and as the index is named, this index is primarily an index of perceived corruption. As such, it is best used for analysis when one of the key variables is perceived corruption, more so when the key variable is actual corruption or corrupt behaviour. This is the case in Poprawe’s model, where it is reasonable to expect tourists make decisions about their travels based on their perceptions of corruption, not based on what the actual ground conditions might be.
Poprawe’s work highlights several avenues for future research. One wonders how corruption may interact with media freedom to condition tourism. In other words, if a government successfully controls information available about their country, are they able to reduce the influence of corrupt activity on the decision of outsiders to visit? Similarly, it seems possible that there would be heterogeneous effects for different kinds of corruption, suggesting disaggregation of the CPI may be interesting. The theory section of Poprawe’s paper mentions needing to pay bribes to engage in commerce and move about in different countries. This is a very specific kind of corruption that is only one part of the CPI. Further, the one unexplored variable in the paper is simply the level of democracy in a country, which could be an omitted factor affecting both corruption levels and tourism inflows. System of government is entirely ignored in Poprawe’s analysis. These ideas may be interesting to consider in the next iteration of the research.
This study empirically tests the hypothesis that corruption has a negative effect on tourism. Having to pay bribes while on holiday or a business trip increases the costs of travelling to a country where corruption is prevalent. Tourists are thus more likely to travel to countries where these additional costs do not need to be incurred. This hypothesis is tested using a panel data set of over 100 countries and 16 years. The results indicate that a 1-point increase in the Corruption Perception Index (implying a decrease in corruption) results in a 2% to 7% increase in tourist inflows. In addition, tourist inflows rise with GDP per capita, openness and growth and are higher in countries with a temperate climate.
M. Poprawe, A Panel Data Analysis of the Effect of Corruption on Tourism. Applied Economics, 47(23): 2399-2412 (2015)