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Exploring the effect of ICT and tourism on economic growth: a study of Israel

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Abstract

In this paper, we explore the impact of information and communications technology (ICT) and tourism on per worker output over the period 1960–2016 by using an augmented Solow (Quart J Econ 70(1): 65–94, 1956) framework estimated through the autoregressive distributed lag procedure for cointegration (Pesaran et al. in J Appl Econ 16(3):289–326, 2001). The results show that mobile cellular subscriptions (measure of ICT pervasiveness) and visitor arrivals as a percent of workers (measure of tourism) are cointegrated and positive, however, only ICT is statistically significant in the long-run. The long-run elasticity coefficient of ICT and tourism is 0.03 and 0.05, respectively. We note a unidirectional causality from ICT to output per worker, from tourism to output per worker, from capital per worker to tourism, and from ICT to tourism. From the results, we emphasize that focusing on technology advancement and tourism expansion will provide the necessary support for economic growth in the country.

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Fig. 1

Source: World Bank (2017) and authors’ own estimation

Fig. 2

Source: World Bank (2017) and authors’ own estimation

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Notes

  1. The following is a list of the important conflicts: reprisal operations (1950–1960) executed by Israel, Suez crisis (1956), Six-Day War (1967), Yom-Kippur War (1973), Palestinian insurgency in the South-Lebanon (1971–1982), Operation Litani (1978), first Lebanon War (1982), South Lebanon conflict (1982–2000), first Intifada (1987–1993), second Intifada (2000–2005), second Lebanon War (2006), Gaza War (2008/2009), operation Pillar of Defense (2012), operation Protective Edge (2014). Additionally, both sides have used asymmetric battle techniques such as bomb attacks, suicide attacks, assaults on civilians, hijacking, kidnapping, and murder.

  2. ICT refers to information and communication technology and can refer to different types of technology or Internet of Things (IoT). For our purpose, we restrict the definition to mobile cellular, internet, broadband and telecommunications (Kumar et al. 2016 and the references therein).

  3. However in another study Kumar and Vu (2014) find an absence of any causality between ICT and economic growth in Vietnam. This may be due their use of internet users (% of population) as a measure of ICT, which differs from Kumar’s (2014a, b) study which uses telecommunication lines (% of population) as an indicator of ICT. In this study mobile cellular subscription are used as a measure to examine the impact of ICT on growth (c.f. Kumar et al. 2015b).

  4. Dutch disease refers to the increase in the demand for domestic currency leading to appreciation of the currency and loss of competitiveness in the international market.

  5. However, this may be overcome by using different cointegration techniques–examining the acceptable levels of significance, and/or using theoretical justification to support the conclusion.

  6. Elekdag et al. (2006) used δ = 0.10. The choice of factor used to set the initial capital stock and depreciation rate is based on two considerations: (a) capital per worker should exhibit diminishing returns to scale and (b) estimated capital share should revolve around stylised value of 0.33 (Kumar et al. 2017a, b; Bosworth and Collins 2008).

  7. Note that data available on tourism earnings in WDI are from 1995 to 2011. Therefore, we impute the data from 1970 to 1994 which is approximated using the average growth rate formula. That is, tut = \(exp^{{\left( {\ln \left( {tu_{t - 1} } \right) + \hat{g}_{tu} } \right)}}\) where \(\hat{g}_{tu}\) is the average growth rate of tourism (% GDP) for the actual data.

  8. The ratio of internet users to total population (%) is very close to zero over the period 1970–1995, given that internet and computer technology were in their infancy during this period.

  9. Therefore, the numbers close to zero indicates the apparent absence of mobile technology. We assert that a number close to, but not necessarily zero, is also indicative of the fact R&D in mobile and innovative technology was in existence in the early 1970s, at least in the form of idea and in some sense, physical presence. Also, we note that the first commercial PC ‘Programma 101’ from Olivetti was sold in 1965 and the first commercial cell phone Dyna TAC from Motorola was offered 1973.

  10. Note that the constant term is not in the short-run estimation because, mathematically, the constant cancels out when the level variables are differenced including the constant term. This is nicely treated in Mfit 5.01.

  11. The authors thank an anonymous reviewer for highlighting this point. However, due to inconsistent data and small sample on human capital, it was not included.

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Acknowledgements

Peter J. Stauvermann acknowledges the financial support of the Changwon National University in 2017–2018 for his active research contributions. All the authors are thankful to the Editor-in-Chief, Professor George Hondroyiannis, and the two anonymous reviewers for their comments and advice. The usual disclaimer applies.

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Correspondence to Ronald Ravinesh Kumar.

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Kumar, R.R., Stauvermann, P.J., Kumar, N. et al. Exploring the effect of ICT and tourism on economic growth: a study of Israel. Econ Change Restruct 52, 221–254 (2019). https://doi.org/10.1007/s10644-018-9227-8

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  • DOI: https://doi.org/10.1007/s10644-018-9227-8

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