This paper uses relatively new heterogeneous panel autoregressive distributed lag cointegration methods to re-examine the long-run equilibrium and Granger causality relationship between tourism and economic growth for the small island developing states (SIDSs). In addition, the study incorporates energy consumption and foreign direct investment (FDI) as alternative growth determinants, during the period 1995–2014. After allowing for the heterogeneous country effect, a positive and statistically significant long-run equilibrium relationship between tourism, energy consumption, FDI, and gross domestic product, with a moderate convergence rate towards the long-run path is confirmed. The panel Granger causality test as proposed by Dumitrescu and Hurlin [(2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450–1460.] shows bidirectional causality running from tourism to economic growth, from tourism to energy consumption and from energy consumption to economic growth, and unidirectional causality between FDI and tourism, between economic growth and FDI, and between FDI and energy consumption. Our empirical findings provide support for tourism-induced growth, tourism-induced energy consumption, tourism-induced investment, and the energy consumption-economic growth relationship in the case of SIDSs. Our empirical results resonate with the existing findings with major policy implications for the SIDSs.

In this paper, we examine the direction of causality between tourism, economic growth and carbon emissions in a multivariate framework that incorporates the newly introduced globalization index as an additional variable. In order to achieve the research objective, we employed panel Granger causality testing approach as suggested by Kónya [(2006). Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23(6), 978–992] built on the Seemingly Unrelated Regressions and Wald tests that account for heterogeneity, cross-sectional dependence, and also produces country-specific bootstrap critical values, for a panel of 16 small island developing countries over the periods 1995–2014. Regarding the direction of causality between the variables, empirical results provide evidence in support of demand-flowing and supply-leading hypotheses, and that factors that contribute to environment pollutions are more internal, particularly within the tourism island territories.