Does good governance promote tourism sector? A panel data coefficient analysis

Abstract

This study examines the impact of good governance on the tourism sector in the top 10 countries that attract the most tourists worldwide. Good governance encompasses the rule of law, government effectiveness, political stability, transparency, accountability, and corruption control. The study has transformed these elements into a comprehensive index called the Corporate Governance Index (CGI). Panel data methods are conducted, and the Beck and Katz and Driscoll and Kraay estimator techniques are employed in the analysis. According to the findings, a 1-unit increase in the CGI leads to a 17% increase in tourism expenditure and a 7% increase in the number of incoming tourists. These findings show that countries with strong and transparent institutions are more attractive to international tourists. A stable political environment, low corruption perception, and effective public services positively influence tourists' travel decisions. Additionally, good governance ensures economic stability and internal security, strengthens the country's global image, and yields positive results in the tourism sector. This study combines governance indicators, which were previously addressed separately in the literature, into a single composite index, namely CGI, and empirically reveals the impact of cross-country governance differences on tourism performance through a comparative analysis using panel data techniques. Furthermore, the estimation methods used in the analysis increase the reliability of the results. In conclusion, this study highlights the importance of good governance reforms for the sustainable growth of the tourism sector and provides policymakers with concrete recommendations for improving governance quality.