Nonlinear nexus between corruption and tourism arrivals: a global analysis

Stylianou, Ioanna orcid iconORCID: 0000-0002-2064-4052, Krambia-Kapardis, Maria and Demetriou, Salomi (2022) Nonlinear nexus between corruption and tourism arrivals: a global analysis. Empirical Economics . ISSN 0377-7332

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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 2001-2018 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, whilst 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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