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Green finance in u.s.a
Global tourism industry has made significant progress during the last 50 years, making it one
of the largest contributors to the world’s GDP and also one of the largest employers globally.
Prior to the recent COVID-19 pandemic, it accounted for more than 10% of the global GDP
and was responsible for one-fourth of the jobs created annually. International visitors spending
was budgeted at 7% of the total exports and more than 25% of the global services exports.
However, the recent pandemic has substantially reduced the sector to merely 5.5% of the
world’s GDP – a reduction of almost 50% compared to a much lower decline of 3.7% of the
global economy. This implies a highly volatile nature of the industry in response to
environmental conditions. However, the pandemic has also led to an increasing realization over
the direct and indirect benefits of the industry and the importance of sustainability in tourism
management. The sector contributes directly to socio-economic empowerment of local
communities and tribal races; women empowerment and employment opportunities;
employment generation; poverty reduction and nation’s wealth creation. It indirectly benefits
the economy through various linkages such as supply chain infrastructure. U.S. is currently the
largest economy in the world in terms of its travel and tourism sector that contributes $2 trillion
to the world’s GDP and ~9% to the country’s GDP in 2019. It is responsible for 10% of the
jobs created in the country in 2019 though the pandemic has affected the sector adversely,
leading to a decline of 42% in 2020 in terms of GDP contribution and 28% decline in
employment creation (Jus & Misrahi, 2021).
Despite its positive impacts on the economy, tourism is also criticized for its adverse impact
on the environment. It is estimated that tourism industry is responsible for 8% of all the carbon
emissions globally. Along with the largest contributor to the world’s GDP, U.S. tourism
industry is also the largest contributor to the global carbon footprint, emitting more than 25%
of the CO2per year. It is also reported that tourism industry alone may be responsible for more
than 80% of the emissions in major tourist destinations such as U.S. (Harvey, 2018). It is
reported that the GHGs emissions in U.S. fell bymore than 10% due to the government-
imposed lockdowns in 2020 induced by the pandemic. Among the various sectors, a large part
of this reduction was attributable to the decline in emissions from transportation sector that
witnessed a 15% decline as travel and mobility was halted. Globally, the emissions fell by more
than 7% as the pandemic pushed the emissions in U.S. below 1990 levels for the first time
(Foderaro, 2021). In 2016, more than 200 countries signed the historic Paris Agreement that
vowed to maintain the global temperature rise within 1.5 – 2o Celsius of the pre-industrial levels
(Denchak, 2021). However, most of the nations are far behind the promised emission levels to
achieve the temperature target. Though the current efforts have reduced the projected
temperature increase to 2.9oCelsius compared to 3.6oCelsius pre-agreement by the end of
2100, the efforts are insufficient to meet the required levels as the world is already witnessing
a 1.5o Celsius increase currently. To achieve the target, the annual emissions would have to be
reduced by more than 7% annually till the next decade, an achievement that the world achieved
only due the pandemic induced lockdown (Cho, 2021). Under the new Biden administration,
the country aims to reduce net-carbon emissions to zero by 2050 but studies report that they
are likely to miss their targets (Buchholz, 2021).
The above environmental challenges pose the greatest threat for tourism since it thrives on
natural environment, wildlife and resources. Tourism sector is thus believed to be ahead of the
curve than financial or other sectors in promoting sustainability practices. Despite the
willingness to upgrade the required infrastructure to promote sustainability, lack of adequate
financing options has been a major roadblock for the sector, especially the financing of green
activities and processes due to the lack of awareness about expected returns on such initiatives.
In this regard, sustainable tourism financing deals with the management of financing sources
and investment opportunities for the tourism sector aimed at maximising shareholder’s wealth
while ensuring environmental sustainability. It serves two broad functions in an organization
to achieve the required objective. Firstly, it helps to identify the value-added tourism projects
that should receive the funding based on the criteria of shareholder’s wealth maximisation and
environmental sustainability. Secondly, it seeks to identify the appropriate sources of finance
through a mix of debt and equity that can minimize the cost of capital for the organization.
2. Literature Review
2.1 Tourism and economic growth
There have been several attempts to assess the relationship between tourism development and
economic growth. (Tugcu, 2014) conducted a causality analysis to assess the contribution made
by tourism across several countries. It found that the relationship is dependent on the countries
income levels and the indicators used. Various reasons were suggested for this positive long-
term contribution of tourism in economic development such as:
Stimulating growth other industries such as travel and transportation
Providing cost efficiencies to the destination through economies of scale
Generating foreign exchange revenues through international tourism
Encouraging competition by improving the brand image of the destination
Contrary to the above study that suggests a uni-directional association between tourism and
long-term economic growth, (Phiri, 2016) found a bi-directional causality between receipts or
income from tourism activities and economic development. The study postulates an economic
growth driven tourism hypothesis whereby a country must focus on improving its infrastructure
that attracts tourists into the country, leading to a virtuouscycle of growth. This is also
evidenced by the study conducted by (Lanza, Temple, & Urga, 2003) which found that
developed countries have a higher level of tourism activity than developing countries with
lower levels of infrastructure maturity and development. (Antonakakis, Dragouni, & Filis,
2015) found that the bi-directional approach is not stable over time but is time-dependent and
economic event-dependent.
(Aratuo & Etienne, 2019) investigated the relationship between the economic growth and
tourism sub-sectors – air travel, accommodation, F&B, other transportation and entertainment
of U.S. between 1998 –2017. The results showed that U.S. could benefit substantially from
the tourism investment in the long-run even during economic stagnation. A reverse causality
was also found between the tourism industries and economic growth who could take cues from
general economy. The paper also suggested that tourism investments should prioritise specific
sectors like food, shopping and leisure. (Ongan, Işik, & Özdemir, 2017) studied the impact of
changes in real exchange rates to the U.S. international tourism demand. The study found that
tourists were more sensitive to changes in the exchange rates than changes in the country’s
GDP level. Besides the exchange rate, (Yazdi & Khanalizadeh, 2017) also evaluated the impact
of other determinants of international tourism demand in U.S. The study found that real GDP,
CPI and specific economic events were also significant determinants of the international
demand. The study also found that tourism infrastructure is a major determinant of the taste
formation for tourists and hence, international tourism demand for U.S.
(Aratuo, Etienne, Gebremedhin, & Fryson, 2019) investigated the relationship between tourism
and economic growth in the USA and analysed the impact of shocks on such a relationship.
The study found strong support for the economic-growth-led-tourism-development hypothesis
as GDP growth causes tourist arrivals in the U.S.in the long run. The authors stipulate that such
a relationship has important implications for the marketing, investment, funding and
sustainability decisions of organizations involved in promoting tourism. The findings imply
that policymakers should focus on the deployment of funds for both economic growth and
tourism development through improvements in tourism infrastructure. Thus, both private and
public sectors should prioritise the funding investments in tourism infrastructure such as quality
of water supply, electricity generation and distribution, waste disposal etc. Private sector
investors could link their investments to the business cycle as the economic growth could also
predict growth of tourism sector