Institutional Quality and Tourism: Panel Causality Analysis in the Case of Mediterranean Countries

Using panel data methods this study examines the relationship between institutional quality and tourism in the case of 12 Mediterranean countries. Six indexes of the Worldwide Governance Indicators database and a general index calculated as their average were taken into consideration as institutional quality indicators. International tourism receipts per tourist and international tourism receipts as a percentage of export were used as tourism performance indicators. In analysis, the cross-sectional dependence was examined by Pesaran (2004) CD test and in accordance with the findings of this test, first and second-generation panel unit root tests were applied. Taking into consideration of the stationarity of the variables and non-homogeneity of the parameters, the relationship between institutional quality and international tourism revenues was examined by Dumitrescu and Hurlin (2012) heterogeneous panel causality test. Findings of the causality analysis strongly supported the causality toward international tourism receipts per tourist from institutional quality variables. Causality to the international tourism receipts as a percentage of export was supported for some of the institutional quality variables.