This study examines the causal relationship between tourism expansion, economic growth and poverty for the Nicaraguan economy. Using co-integration and causality tests, the study’s results lend support to the proposition that tourism has a significant positive impact on Nicaragua’s economic expansion and development. With the knowledge from the output test, the study uses a regression analysis to test the hypothesis that income growth and tourism development would lead to a decline in the proportion of people below the poverty line. The paper presents arguments in support of the proposition that tourism, as a source of economic growth and development, offers a convincing case for the use of policy instruments focused to drive a tourism-based economy or tourism programs. It discusses its potential to stimulate further research designed to have the best available estimates of tourism impacts on variables such as economic growth and poverty.