1
Finance, Accounting and Business Analysis
Volume 8 Issue 1, 2026
http://faba.bg/
ISSN 2603-5324
DOI:
https://doi.org/10.37075/FABA.2026.1.01
The Impact of Financial Development on Tourism Development in
Mauritius: A NARDL Approach
Mercy T. Musakwa
1
*
, Nicholas M. Odhiambo
2
Economics Departments, University of South Africa, Pretoria, South Africa
1
Economics Departments, University of South Africa, Pretoria, South Africa
2
* Corresponding author
Info Articles
Abstract
History Article:
Submitted 3 October 2025
Revised 10 December 2025
Accepted 14 February 2026
Purpose: In this study, we explore the nexus between financial
development and tourism development in Mauritius over the period 1980–
2022. Mauritius is one of the most popular tourist destinations in Africa.
In response, the country has implemented several programs aimed at
promoting its tourism sector. Simultaneously, it has pursued financial
sector reforms that have significantly transformed its financial sector. This
study, therefore, seeks to investigate whether financial sector development
has had a significant effect on tourism development in Mauritius.
Design: The study employs the Nonlinear Autoregressive Distributed Lag
(NARDL) model and uses two proxies for financial development –
namely, the financial markets index and domestic credit to the private
sector – to examine this relationship.
Findings: When the financial markets index was used as a proxy,
decreases in financial development were found to move in the same
direction as tourism development in the long run. In contrast, increases in
financial development showed no significant effect on tourism
development in either the short or long run. However, when domestic
credit to the private sector was used as a proxy, increases in financial
development were found to be negatively associated with tourism
development in both the short and long run, whereas decreases in financial
development were again found to move in the same direction as tourism
development in the long run. In addition, positive shocks to financial
development were found to have a deeper impact on tourism development
than negative shocks.
Practical Implications: A decrease in financial development, irrespective
of the financial development proxy used, was found to have a negative
association with tourism in Mauritius. This result implies a decrease in
financial development leads to a fall in tourism advancement that the
country pursues as one of the development pillars.
Originality value: The study departs from the previous studies by
investigating the asymmetric impact of financial development on tourism
using market-based and bank-based financial development measures.
Previous studies largely assumed a linear relationship between tourism
and financial development.
Paper Type: Research Paper
Keywords:
development; tourism; non-
linear autoregressive
distributed lag (NARDL);
Mauritius
JEL: GO, G2, F2.
*
Address Correspondence:
E-mail: tsile.musa@gmail.com
1
odhianm@unisa.ac.za/nmbaya99@yahoo.com
2
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
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INTRODUCTION
Tourism has grown over the years to become an important sector with the potential to boost economic
development and a source of revenue in developed and developing countries alike. This has also drawn the
attention of researchers who have explored the relationship between tourism and other macroeconomic
variables like financial development, sustainability, and poverty alleviation. The Sustainable Development
Goals (SDGs) also promote tourism as a source of decent work and economic growth – this is encapsulated
in SDG 8 - decent work and economic growth (United Nations 2025). However, there has been a growing
consciousness of sustainable tourism, where efficient resource use and environmentally friendly tourism
policies and practices are upheld. Tourism growth was interrupted by the COVID-19 health crisis which
resulted in a drastic fall in tourism across most countries due to lockdowns that restricted international and
local travel to contain the spread of the virus. In the journey to recovery from the pre-pandemic period,
tourism levels have taken varied levels across countries. High-income countries in Europe and Asia-Pacific
continue to lead on the World Economic Forum Travel and Tourism Index (World Economic Forum 2024).
Low to upper-middle economies constitute 52% out of 71 economies that improved their score post the
pandemic period (World Economic Forum 2024). Most developing countries still face challenges in closing
the potential gap as far as tourism is concerned (World Economic Forum 2024). Tourism development
comes at a time when critical external funding is important for most developing countries who were
negatively affected by the COVID-19 pandemic in achieving SDGs targets. The drive towards globalisation
was associated with liberalisation of most sectors like trade, financial market, cultural events and tourism,
with the objective of increasing the benefits that come with open economies. The objective of this study,
therefore, is to investigate the asymmetric impact of financial development on tourism.
Although several studies have been done on the relationship between tourism and financial
development, most studies explored the causality between tourism and financial development (see, Kumar,
Chandra and Patel 2023; Fauzel and Seetanah 2021; Musakwa and Odhiambo 2021; Ehigiamusoe 2021;
Shahbaz, Benkraiem and Tiwari 2018) A dearth of literature has examined the impact of financial
development on tourism in general (Lodhi et al. 2024; Ahamad and Chowdhury 2024; Churchill et al. 2023;
Khanna and Sharma 2021), assuming a linear relationship on the negative and positive changes on financial
development has the same effect. Limited studies have explored the non-linear relationship between tourism
and financial development. This is despite the great strides that have been made by most countries to
liberalise the financial sector to increase integration into the global world. Can this effort kill two birds with
one stone: increasing financial integration and improving tourism? This study contributes to the body of
existing knowledge by examining the asymmetric impact of financial development on tourism using the non-
linear autoregressive distributed (NARDL). The study used two proxies of financial development namely,
credit to the private sector and the Financial Markets Index, developed by the International Monetary Fund
(IMF).
Mauritius forms an interesting case study given the strides and commitment the country has made to
promote tourism and advance financial development. Mauritius is among one of the countries that is a world
tourist destination. This has been made possible by a combination of natural endowments and policies that
support tourism, making tourism a significant contributor to the Gross Domestic Product. In addition,
Mauritius is in the upper-middle income according to World Bank income country classification, a feat most
developing countries are striving to achieve. The country serves as a good reference point for most countries
that are endeavouring to increase economic growth and step -up income classification levels using different
sectors like tourism and financial development.
The paper is divided as follows: Section 2 is divided into country-based literature and empirical
literature review; Section 3 outlines the methodology used in the study and Section 4 presents and discusses
the results. The last section, Section 5 concluded the study.
LITERATURE REVIEW
Financial development and tourism dynamics
Mauritius is an economy that started as an agricultural-backed economy, before diversifying into
other sectors. Mauritius is known as a tourist attraction country. The journey to economic liberalisation
started in the 1980s when the country gradually allowed market forces to determine most of the economic
activities in the country. The Bank of Mauritius was created in 1967 through the Bank of Mauritius Act of
1966 (Bank of Mauritius 2025). The bank was mandated to preserve the internal and external value of the
currency and to perform monetary policy that supports economic growth (Muyambiri and Odhiambo 2016).
The Bank of Mauritius 1966 created the legal framework for the establishment and operation of the Bank.
The act has been amended over the years to cater for new needs and challenges in the banking sector. For
example, amendments were made in 2004 and 2016 strengthened the role of the bank in financial regulation
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
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and supervision and introduction of banking sector payments system and financial inclusion, respectively
(Muyambiri and Odhiambo 2016). In the spirit of leaving most banking and financial activities to market
forces, exchange control liberalisation started in 1989 and the creation of the Stock Exchange of Mauritius
in 1989 (Muyambiri and Odhiambo 2016). The liberalisation involved the removal of credit ceilings,
phrasing out of direct credit programmes, interest rate libelisation, auctioning of treasury bills and removal
of the credit-deposit ratio (Muyambiri and Odhiambo 2016; Jankee 1999). This introduced competition in
the financial sector and opened the sector for more players (Jankee 1999).
Apart from the Bank of Mauritius Act of 1966, other supporting acts include the Banking Act of 2004
which regulates financial and commercial institutions in Mauritius and clearly spells out the role of
commercial banks and that of the central bank; and the Financial Services Act of 2007, that led to the
establishment of the Financial Service Commission (FSC) that work with the bank of Mauritius to regulate
non-banking institutions (Bank of Mauritius, 2025). Another key piece of legislation in Mauritius is the
National Payment Systems Act of 2018, which provides a framework for the oversight, supervision and
regulation of the national payment system to ensure its efficiency and safety for the public (Bank of Mauritius
2025). To align with international standards on anti-money laundering and counter-terrorism financing,
Mauritius has enacted several key legal frameworks, including the Prevention of Terrorism Act of 2021, the
Convention for the Suppression of the Financing of Terrorism Act of 2019, and the Prevention of Terrorism
Act of 2019. Additionally, the steps taken by the Bank of Mauritius to advance financial liberalisation and
establish a robust legislative framework have supported the development of a vibrant financial system. This
system not only meets the country’s economic development needs but also enhances the integration of
Mauritius’s financial sector into the global market.
Tourism development
The tourism sector in Mauritius has grown from a few tourist arrivals in 1980 to millions of arrivals
over the years (World Bank, 2025). The sector contributes more than 5 percent to GDP on average every
year (World Bank, 2025). The growth in the tourism sector does not come as a coincidence, but a well-
orchestrated support to the sector from the government and a drive to diversification of the economy. The
Tourism Authority, established under the Tourism Authority Act of 2006, operates under the aegis of the
Ministry of Tourism and serves as the regulatory body for the tourism industry.
The objective of the Tourism Authority is to promote the sustainable development of the tourism
sector, foster public interest and understanding of the industry, implement tourism-related projects, and
support research and development, among other goals (Tourism Authority, 2025). These objectives are
carried out through eight core functions: (1) managing tourist sites; (2) investigating illegal activities and
improper practices in the industry; (3) providing guidance and codes of practice for the operation of tourist
enterprises; (4) developing and improving the tourism sector; (5) protecting consumer interests; (6) collecting
and publishing tourism-related statistics; (7) advising the Ministry of Tourism; and (8) promoting Mauritius
as a tourist destination (Tourism Authority, 2025). The objectives of the Ministry of Tourism in Mauritius
reflect the core function of the Tourism Authority. The Ministry of Tourism provides the legal and
operational framework for tourism regulation, monitoring and planning; promotes Mauritius as a tourist
destination; and supports tourism-related projects (Ministry of Tourism 2025).
The Mauritius Tourism Promotion Authority (MTPA), established under the MTPA Act of 1996, is
responsible for promoting Mauritius as a tourist destination (Ministry of Tourism 2025). Its services include
organising exhibitions and roadshows, conducting tourism research and providing information services,
hosting international events, arranging familiarisation and press trips, offering promotion and marketing
services, and delivering training for travel trade professionals in source markets (Ministry of Tourism, 2025).
To promote tourism development and reduce administrative burdens, the country has streamlined licensing
procedures, promoted sustainability within the sector, and diversified its tourism offerings beyond beach
attractions to include natural and cultural sites.
The reforms and legislative frameworks implemented to promote tourism have yielded positive results
in attracting visitors. This progress is also reflected in the growing contribution of tourism to the Gross
Domestic Product (GDP) over the years. Figure 1 illustrates the trends in tourist arrivals and financial
development between 1980 and 2022.
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
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Source: World Bank (2025) and IMF (2025)
Figure 1. Trends in Financial Development and Tourism in Mauritius 1980-2022
Mauritius has enjoyed a steady increase in tourist arrivals from 1980 with 115 080 tourists to over a
million tourists in 2019 (World Bank 2025). The outbreak of the COVID-19 pandemic resulted in an abrupt
fall in tourist arrivals in 2020 (World Bank 2025). Although the end of the pandemic resulted in a surge in
tourist arrivals, Mauritius has not reached the pre-COVID levels. On financial development, Figure 1 reports
a gradual increase in financial development over the study period as reflected by the Financial Markets Index
(FD1) and domestic credit to the private sector (FD2). The financial development measures reported in
Figure 1 also dropped abruptly with the onset of the pandemic. Thus, the trend in financial development
mimics the tourist arrivals, suggesting a positive relationship. However, empirical evidence is important to
confirm the relationship between tourism and financial development.
Empirical literature review
The role of financial sector development in tourism growth can be analysed through two main
channels. First, financial sector development facilitates financial intermediation necessary for building
tourism infrastructure such as hotels, roads, information and communication technology, and marketing,
which are key components that drive tourism development. Second, a well-developed financial system not
only allows tourists to easily convert their currency and pay for services such as accommodation,
transportation, and food, but also offers hedging instruments and risk management tools for both tourists
and business investors. Therefore, a robust financial system can be a decisive factor for tourists seeking
destinations that offer both convenient financial access and enjoyable leisure experiences.
The empirical literature that examined the impact of financial development on tourism is limited.
Most of the studies examined the causality between the two. Although it is acknowledged that causal studies
do not imply an impact between the variables, due to limited studies on the impact between tourism and
financial development, the empirical literature on the causality between the two is also highlighted. This
provides an insight into the nature of the relationship between the two.
Lodhi et al. (2024) examined the impact of financial development on tourism for 123 countries from
Asia, Africa, Europe and America using panel data from 1999 to 2018. The study found improvements in
financial development to lead to an increase in tourist arrivals. Similarly, Ahamad and Chowdhury (2024)
studied the nonlinear effects of financial development on tourism in Japan and Germany using monthly data
from 1994: 1 to 2019: 12 and 1996:1 to 2019:12 respectively. The study found positive changes in financial
development to be associated with positive changes in tourism demand. Negative changes in financial
development were found to be associated with negative changes in tourism. Churchill et al. (2023) found the
same results as Lodhi et al. (2024) and Ahamad and Chowdhury (2024) in a study on Germany using data
from 1870 to 2016 with the ARDL framework. Panjaitan (2022), in a study on 10 ASEAN countries using
data from 2010 to 2018, found financial development to have a positive impact on tourism demand. Khanna
and Sharma (2021) examined the impact of financial development on tourism demand for 207 countries
using panel data from 1995 to 2018. Using cross-sectional augmented distributed lag, the study found
financial development to positively impact tourism expenditure and tourism arrivals. Shahbaz et al. (2019)
explored the relationship between tourism development and financial development in Malaysia using data
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
Tourist Arrivals
0
0,1
0,2
0,3
0,4
0,5
0,6
0
20
40
60
80
100
120
1980
1985
1990
1995
2000
2005
2010
2015
2020
FD1 and FD2
FD2
FD1
Domestic Crdit to the Private Sector (%
GDP)
Financial Markets
Index
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
5
from 1975 to 2016. The study found financial development to be positively related to tourism development.
Yoda-Yamamoto Granger causality confirmed a bidirectional causality between tourism development and
financial development.
Causality studies on financial development and tourism are split between unidirectional causality
running from financial development to tourism, tourism to financial development, and bidirectional
causality between the two. For example, Kumar, Chandra and Patel (2023) examined the causal relationship
between tourism and financial development for Fiji and found tourism demand to Granger-cause financial
development. Fauzel and Seetanah (2021) examined the interaction of financial development and tourism
in Mauritius and found a bidirectional causality between financial development and tourism. Musakwa and
Odhiambo (2021) investigated the causal relationship between financial development and tourism in Kenya
and found broad money and the total value of stocks traded as a percentage of gross domestic product to
cause tourism only in the short run. In the same vein, Ehigiamusoe (2021) found a bidirectional causality
between financial development and tourism in a study on 31 African countries. Shahbaz, Benkraiem and
Tiwari (2018) found a bidirectional causality between the two in a study on Mauritius. Katircioglu,
Katircioğlu and Altinay (2017) in a study on Turkey, found a bidirectional causality between tourism and
financial development in the long run.
The studies reviewed on the impact of financial development on tourism point to the positive impact
of financial development on tourism. Thus, financial development plays a key role in influencing financial
development. The country has made great strides to develop the tourism and financial sector. There are
limited studies that have examined if Mauritius can benefit from financial development in advancing tourism
in the country. Although empirical studies reviewed point to the positive contribution of financial
development to tourism, empirical evidence for Mauritius is still lacking. Further, this study provides new
insight into the impact of financial development on tourism using a non-linear autoregressive distributed lag
approach.
ESTIMATION TECHNIQUES
The study uses non-linear autoregressive distributed lag (NARDL) to examine the impact of financial
development on tourism in Mauritius. The NARDL provides an added advantage from the traditional
ARDL by decomposing the impact of financial development into positive and negative partial sums. Unlike
the ARDL, which assumes the changes in financial development have the same effect on tourism, the
NARDL provides more insight into the negative and positive shock on financial development on tourism.
Variables
The primary variables of interest in this study are tourism (TOR) measured by millions of tourist
arrivals and financial development measured by two proxies: i) financial markets index (FD1) which is
captured as the dependent variable in Model 1; and ii) domestic credit to the private sector (FD2), a
dependent variable in Model 2. The control variables included in the model are exchange (EXR), economic
growth, population growth (POP) and urbanisation (URBAN). Table 1 provides a summary of the variable
description and data source of each variable.
Table 1. Variable definition
Variable
Name
Variable Definition
Data Source
TOR
Tourism arrivals (millions)
Ministry of Tourism (2024), Government of Mauritius,
https://tourism.govmu.org/Pages/Statistics/Stats.aspx
EXR
Exchange rate (LCU per US$)
WDI
GDPP
GDP per capita
WDI
FD1
Financial markets index (FMI)
IMF
FD2
Domestic credit to the private
sector (% of GDP)
WDI
POP
Population growth
WDI
URBAN
Urbanisation
WDI
Notes: WDI - World Bank Development Indicators online database, IMF - International Monetary Fund
Model specification and data
The general model specification is given in Equation 1.
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
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(1)
Where:
TOR – tourism
– Financial development measured using two proxies: FD1 – Financial Markets Index (applied in Model
1); and FD2 – Domestic Credit to the Private Sector (applied in Model 2).
EXR – exchange rate
GDPP – GDP per capita
POP – population growth
URBAN – urbanisation
All independent variables remain the same in both Model 1 and Model 2.
The positive and negative decomposition of financial development (FD) in Equation 2 is expressed as
follows:
(2)
Where:
(3)
(4)
Based on the equations above, the NARDL model can be expressed as:
(5)
Where:
Constant;
short-run coefficients;
) long-run coefficients; and
error term.
The NARDL error correction representation of Equation 5 is given in Equation 6.
(6)
Where:
ECM Error correction term
EMPIRICAL RESULTS
The Dickey-Fuller Generalized Least Squares (GLS) and Phillips-Perron (PP) tests were used to check
for stationarity. The results of the stationarity tests are presented in Table 2.
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
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Table 2. Unit root test results
Dickey-Fuller
Generalised Least Square (DF-GLS)
Phillips-Perron (PP)
Variable
Level
∆
Level
∆
TOR
-0.85835
-6.5409***
-1.6617
-4.1590***
FD1
-0.75263
-10.4814***
-0.17635
-10.0639***
FD2
-0.6445
-6.3384***
-1.3651
-6.5624***
EXR
-2.3246
-5.5989***
-2.4239
-5.5794***
GDPP
-1.1241
-6.972141***
-4.5073***
-
POP
0.3539
-3.15407***
-1.2128
-8.2482***
URBAN
-2.5554
-4.7401***
-0.6512
-10.4144***
Notes: *, ** and *** denote statistical significance at 10%, 5% and 1% levels, respectively. ∆ denotes first
difference.
The unit root test results presented in Table 1 show that none of the variables are integrated of order
two [i.e., I(2)] or higher, which is essential for the validity of the non-linear autoregressive distributed lag
(NARDL) approach. The next step involves testing for a long-run relationship among the variables in the
models. The results of the cointegration analysis are presented in Table 3.
Table 3. Cointegration Test Results
Dependent
variable
F-Statistic
Cointegration Status
FD1
4.1728***
Cointegrated
FD2
6.1702***
Cointegrated
Asymptotic critical values
10%
5%
1%
I(0)
I(1)
I(0)
I(1)
I(0)
I(1)
1.700
2.830
1.970
3.180
2.540
3.910
Notes: *** denotes statistical significance at 1% level.
To determine the presence of cointegration in the two models, the F-statistics for the FD1 model
(4.1728) and the FD2 model (6.1702) are compared against the asymptotic critical values reported at the
bottom of Table 3. Since the F-statistics for the two models are above the upper bounds at 1% level of
significance, cointegration is confirmed. Table 4 presents the results of the asymmetric test for the two
models.
Table 4. Long and short-run asymmetry results
FD1 as Dependent variable
Test
F-statistic
P-value
Decision
W
LR
8.015395***
0.0087
Asymmetric
W
SR
3.949397*
0.0571
Asymmetric
FD2 as Dependent variable
W
LR
8.084971***
0.0084
Asymmetric
W
SR
35.528719**
0.0187
Asymmetric
Notes:
1)
*, ** and *** denote statistical significance at 10%, 5% and 1% levels, respectively
2)
W
LR = long-run asymmetric test
3)
W
SR = short-run asymmetric test
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
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The asymmetry results reported in Table 4 confirm the presence of non-linear relationships in both the long
run and short run for Model 1 and Model 2. The long-run and short-run NARDL results are presented in
Table 5.
Table 5. NARDL Results – Long- and Short-run Results
FD1 as FD proxy (Model 1)
FD2 as FD proxy (Model 2)
Panel A: Long-Run Results
Regressor
Coefficient
T-ratio [p-value]
Coefficient
T-ratio [p-value]
-1.071882
-1.248775 [0.2203]
-
-
5.204101**
2.174351 [0.0367]
-
-
-0.025599***
-8.701791 [0.0000]
0.008601***
4.638249 [0.0001]
-0.003136
-0.307738 [0.7602]
0.004896
1.049134 [0.3015]
0.000385***
4.793725 [0.0000]
0.000501***
13.92097 [0.0000]
-0.065694
-0.263859 [0.7935]
0.143727
1.457455 [0.1542]
-0.034743
-0.553519 [0.5835]
-0.092052***
-3.492261 [0.0013]
Panel B: Short-Run Results
Regressor
Coefficient
T-ratio [p-value]
-0.459172***
-2.997292 [0.0058]
-
-
-0.284961
0.737221
[04660]
-
-
0.764999
1.060574
[0.2964]
-
-
-
-
-0.010396***
-4.361434 [0.0001]
-
-
-0.000267
-0.113592 [0.9102]
0.005677
0.830470 [0.4121]
0.009611
1.661147 [0.1059]
0.000576***
17.42099 [0.0000]
0.000577***
18.47107 [0.0000]
-0.078309
1.169152 [0.2505]
0.009595
0.164462 [0.8703]
-0.080574
-1.145868 [0.2599]
0.074064
1.186981 [0.2435]
-0.459172***
-6.483662 [0.0000]
-0.976873***
-7.884096 [0.0000]
Panel C: Test statistics and diagnostics
R- Squared
0.910411
0.929051
R-Bar-Squared
0.894601
0.916531
F-statistics [Prob]
57.15382 [0.000000]
74.20313
[0.00000]
Notes: *, ** and *** denote statistical significance at 10%, 5% and 1% levels, respectively. + and - denote
positive and negative shocks.
The results reported in Table 5, Panel A confirm that when the financial markets index (FD1) is used
as a proxy for financial development, negative shocks to both financial development and tourism
development move in the same direction in the long run, as evidenced by the coefficient of
, which has
been found to be statistically significant at the 5% level. However, in the short run, these negative shocks
were found to be statistically insignificant. In contrast to the negative shocks, the effects of positive shocks
to financial development were found to be insignificant in both the short run and the long run. The results
also indicate that negative shocks to financial development have a deeper impact on the tourism sector
development than positive shocks, as confirmed by the dynamic multiplier graph presented in Figure 2.
When financial development was measured by domestic credit to the private sector (FD2), positive
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
9
shocks to financial development were associated with negative changes in tourism, both in the long run and
the short run. These results are supported by the negative coefficients on
and
, both of which
have been found to be statistically significant at the 1% level. Using the same financial development proxy,
the study found that negative shocks to financial development and tourism development move in the same
direction in the long run. However, in the short run, these negative shocks to financial development had no
significant effect on tourism arrivals. The results also indicate that, overall, positive shocks to financial
development have a greater impact on tourism arrivals than negative shocks, as illustrated by the dynamic
multiplier graph in Figure 2.
Other results reported in Table 5, Panels A and B, confirm that Gross Domestic Product (GDP) per
capita has a positive impact on tourism in both the short run and the long run, regardless of the financial
development proxy used. In contrast, exchange rate, population growth and urbanisation were found to be
statistically insignificant in both the short and long run, irrespective of the financial development measure
used.
The explanatory power of Model 1 (where financial development is measured by the financial markets
index) and Model 2 (where financial development is measured by domestic credit to the private sector) is
91% and 93%, respectively. The error correction terms for the two models were found to have the expected
negative signs – i.e., -0.459172 and -0.976873, respectively – and are statistically significant at the 1% level.
This confirms that both models are convergent, and that any short-run disequilibrium in the economy will
be corrected over time, allowing the system to return to its long-run equilibrium. The dynamic multiplier
graphs for Model 1 and Model 2 are reported in Figure 2.
Cumulative Dynamic Multiplier - FD1 on Tourism
Shock Evolution
Cumulative Dynamic Multiplier - FD2 on
Tourism Shock Evolution
Figure 2. Dynamic multiplier graph
CONCLUSION
This study examined the impact of financial development on tourism in Mauritius, using data
spanning from 1980 to 2022. Mauritius has made significant progress in the development of its financial
sector and the advancement of tourism. The current study, therefore, explores whether the tourism sector in
Mauritius can benefit from the growth of the financial sector. Using the non-linear autoregressive distributed
lag (NARDL) approach and two proxies for financial development – financial markets index and domestic
credit to the private sector – the study found that the impact of financial development on tourism varies
depending on the proxy used. When financial development was measured by the financial markets index,
the study found decreases in financial development to move in the same direction as tourism development
in the long run. In contrast, increases in financial development had no statistically significant impact on
tourism development in either the short run or the long run. However, when financial development was
proxied by domestic credit to the private sector, increases in financial development were found to be
negatively associated with tourism development in both the short and long run. Conversely, decreases in
financial development were found to move in the same direction as tourism development in the long run. In
addition, positive shocks to financial development were found to have a greater impact on tourism
development than negative shocks. Based on these results, it can be concluded that when financial
development was measured by financial markets index, negative shocks to financial development have a
M.T. Musakwa, N. M. Odhiambo / Finance, Accounting and Business Analysis, Volume 8., Issue 1, 2026
10
deeper impact on tourism than positive shocks. However, when financial development was proxied by
domestic credit to the private sector, positive shocks to financial development have a deeper impact on
tourism than negative shocks. The study, therefore, recommends that Mauritius continue to promote and
strengthen its financial development sector to stimulate growth in the tourism industry.
Acknowledgments
No acknowledgements
Funding
No funding was obtained for this paper.
Data Available Statement
The data is available upon reasonable request.
Conflict of interest
No conflict of interest is declared by all the authors
AI Tools Statement
All authors confirm that no AI tools were used in the preparation of this manuscript.
Author contribution
Musakwa, MT – conceptualisation, writing, data curation, formal analysis.
Odhiambo, NM – conceptualisation, methodology, data curation and editing.
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