Exploring the role of tourism dependency on COVID-19 induced economic shock in the Small Island Developing States

Abstract

All countries have suffered significant economic losses due to COVID-19 but some are affected more than others. A number of vulnerabilities explain the magnitude and differences in the economic shocks felt worldwide. This paper uses Ordinary Least Squares regression techniques to estimate the role of tourism dependency in explaining the differences in the COVID-19 induced economic shock in a sample of Small Island Developing States. The model also includes remittances, natural resource dependency, government debt and a measure of the quality of governance. The results confirm tourism dependency plays a significant role in explaining the cross-country differences in economic shocks. The economies that are more dependent on tourism have suffered larger economic shocks but remittances and natural resources have mitigated the negative impacts. The differences in the quality of governance also matter but debt levels do not explain the crosscountry variations in the economic shocks. Hence, these fragile and small island economies need to develop appropriate economic diversification strategies, strengthen traditional economic activities and adapt new strategies, products and innovative business models for their tourism industry as the pandemic recedes and global travel resumes.

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