Ways to bring private investment to the tourism industry for green growth

The concept of green economic growth, emphasizing environmentally conscious economic activity, has gained prominence since the 1960s. Rapid industrialization and population growth led to increased fossil fuel consumption and the looming threat of climate change. While the COVID-19 pandemic temporarily reduced emissions, post-pandemic economic recovery saw a surge. Green growth recovery aims to revive economies while prioritizing environmental concerns. However, challenges remain, including global competition for economic growth and the substantial capital required for green initiatives. The tourism industry, a major economic sector globally, is particularly relevant to this discussion. The COVID-19 pandemic severely impacted tourism, but the sector is gradually recovering. Sustainable tourism, which incorporates environmental and social concerns, offers an opportunity for green growth. However, achieving sustainable tourism requires significant investment, often beyond the capacity of many governments. Attracting private investment is therefore crucial. This research focuses on ten ASEAN economies, chosen due to their capital shortages, significant sustainable tourism potential, and existing commitments to sustainable tourism development, as evidenced by initiatives like the ASEAN Green Hotel Standard and strategic plans. The study aims to analyze the impact of key variables on sustainable tourism, filling a gap in the literature by examining private investment attraction in the ASEAN context.

Existing literature shows mixed findings on the relationship between tourism and green growth. Some studies reveal that tourism development often leads to environmental degradation, while others highlight the positive impact of tourism expansion on sustainability and carbon emissions reduction. The tourism circular economy, aiming to reduce resource consumption, is also discussed. Research on green finance and sustainable tourism emphasizes the crucial role of private sector investment, driven by factors like green bonds, venture capital, and green loans. Studies reveal that investments in greening the hotel energy sector reduce fossil fuel consumption and increase renewable energy adoption, highlighting the significance of investment in smart city initiatives for eco-tourism development. However, research on attracting investors to sustainable tourism projects in ASEAN member countries has been limited, thus motivating this study.

This research utilizes panel data from ten ASEAN economies (Myanmar, Indonesia, Cambodia, Vietnam, Singapore, Philippines, Malaysia, Thailand, Brunei, and Laos) for the period 2000-2021, totaling 220 observations. Due to the lack of direct data on private sector investment in sustainable tourism, a composite indicator of sustainable tourism, proposed by Blancas and Lozano-Oyola (2022), serves as a proxy for the dependent variable. Independent variables include a green growth index, financial development (domestic credit to the private sector as a percentage of GDP), green finance, an economic uncertainty index, and the inflation rate. The analysis begins with a Pesaran and Smith (1995) cross-sectional dependency test, followed by the CIPS test (if cross-sectional dependency is confirmed) to determine the order of integration of the variables. A panel co-integration test using the Westerlund (2007) ECM technique is then performed, with a robustness check using the Pedroni (2004) test. The Hausman test assesses long-term variable homogeneity before employing the Pooled Mean Group (PMG) technique for coefficient estimation. A robustness check is also conducted using the Fully Modified OLS (FMOLS) technique.

The cross-sectional dependency test confirms the presence of cross-sectional dependency across all series. The CIPS test results indicate that all variables are integrated of order one (I(1)). Both the Westerlund and Pedroni panel co-integration tests confirm the existence of long-run relationships between the variables. The Hausman test suggests that the Pooled Mean Group (PMG) estimator is appropriate. The PMG estimation results reveal that in the short run, green growth has the most significant positive effect on sustainable tourism. Financial development and green finance are insignificant. Economic uncertainty and inflation have negative effects. In the long run, green finance has the most substantial impact, followed by green growth and financial development. Economic uncertainty and inflation again show negative effects. A robustness check using the FMOLS technique confirms these findings.

The findings address the research question by highlighting the key drivers of private investment in sustainable tourism in ASEAN countries. In the short term, focusing on immediate economic gains from green growth is crucial for attracting private investment. However, in the long run, green finance plays a pivotal role, implying that the development of green financial markets and instruments is essential for achieving sustainable tourism goals. The negative impact of economic uncertainty and inflation underscores the importance of macroeconomic stability and policy certainty for promoting private investment in the sector. These results align with existing literature emphasizing the importance of green finance and macroeconomic conditions for sustainable development.

This research contributes significantly to understanding the factors influencing private investment in sustainable tourism within the ASEAN region. The findings underscore the importance of both short-term incentives (green growth) and long-term mechanisms (green finance) for attracting private investment. Policy implications involve implementing comprehensive financial policy packages, developing ICT-based tourism services, creating early warning systems, and exploring blockchain/cryptocurrency for green investments. Future research could explore the impact of the COVID-19 pandemic on green investments and conduct country-specific analyses within ASEAN to tailor policies effectively.

The study relies on a composite indicator as a proxy for private investment in sustainable tourism due to data limitations. This could affect the precision of the results. Future research should focus on obtaining more granular data on private investment to enhance the accuracy of the analysis. Additionally, the study focuses on ten ASEAN countries, and the generalizability of the findings to other regions might be limited.