T Musakwa Mercy, Nicholas M
Purpose: In this study, we explore the nexus between financial development and tourism development in Mauritius over the period 1980–2022. Mauritius is one of the most popular tourist destinations in Africa. In response, the country has implemented several programs aimed at promoting its tourism sector. Simultaneously, it has pursued financial sector reforms that have significantly transformed its financial sector. This study, therefore, seeks to investigate whether financial sector development has had a significant effect on tourism development in Mauritius. Design: The study employs the Nonlinear Autoregressive Distributed Lag (NARDL) model and uses two proxies for financial development – namely, the financial markets index and domestic credit to the private sector – to examine this relationship. Findings: When the financial markets index was used as a proxy, decreases in financial development were found to move in the same direction as tourism development in the long run. In contrast, increases in financial development showed no significant effect on tourism development in either the short or long run. However, when domestic credit to the private sector was used as a proxy, increases in financial development were found to be negatively associated with tourism development in both the short and long run, whereas decreases in financial development were again found to move in the same direction as tourism development in the long run. In addition, positive shocks to financial development were found to have a deeper impact on tourism development than negative shocks. Practical Implications: A decrease in financial development, irrespective of the financial development proxy used, was found to have a negative association with tourism in Mauritius. This result implies a decrease in financial development leads to a fall in tourism advancement that the country pursues as one of the development pillars. Originality value: The study departs from the previous studies by investigating the asymmetric impact of financial development on tourism using market-based and bank-based financial development measures. Previous studies largely assumed a linear relationship between tourism and financial development.