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Tourism Expansion and Economic Development: Var/Vecm Analysis and Forecasts for the Case of India

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  • Andreas G. Georgantopoulos

    ()
    (52, Gennaiou Kolokotroni str., 117 41, Athens, Greece)

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    Abstract

    This study tests for the existence and direction of causality between output growth and tourism expenditure using a trivariate model with real effective exchange rate (REER), analysed as a whole and in sub-categories (i.e. leisure travel and tourism expenditures, LTS and business travel and tourism expenditures, BTS) during the period 1988-2011 for India. For this purpose exhaustive empirical evidence are provided from the application of Phillips-Perron and KPSS unit root tests, Johansen cointegration tests, VAR models with an error-correction term, impulse responses, variance decompositions and forecasts generated from the VAR/VECM models. Results for the aggregated model indicate that all variables return to their long-run equilibrium relationships although this model failed to support the significance of causal links between total tourism expenditure and India’s real output. However, the application of the disaggregated model imply strong bidirectional causal links between growth and LTS in the long-run and unidirectional causal links from LTS and BTS to growth suggesting direct impact of tourism on the Indian real output. Finally, forecasts generated for the period 2012-2016 are promising; total tourism expenditure compared to the previous half-decade will grow at a similar pace and optimistic forecasts are generated for the case of LTS, BTS and GDP.

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    Bibliographic Info

    Article provided by Asian Economic and Social Society in its journal Asian Economic and Financial Review.

    Volume (Year): 3 (2013)
    Issue (Month): 4 (April)
    Pages: 464-482

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    Handle: RePEc:asi:aeafrj:2013:p:464-482

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    Related research

    Keywords: Tourism; Economic Growth; Cointegration; Forecasts; India;

    References

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    1. Jacint Balaguer & Manuel Cantavella-Jorda, 2002. "Tourism as a long-run economic growth factor: the Spanish case," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 877-884.
    2. repec:asi:aeafrj:2012:p:518-529 is not listed on IDEAS
    3. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
    4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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    10. Jordan Shan & Ken Wilson, 2001. "Causality between trade and tourism: empirical evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 8(4), pages 279-283.
    11. Lokman Gunduz & Abdulnasser Hatemi-J, 2005. "Is the tourism-led growth hypothesis valid for Turkey?," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 499-504.
    12. Juan Luis Eugenio-Martín & Noelia Martín Morales & Riccardo Scarpa, 2004. "Tourism and Economic Growth in Latin American Countries: A Panel Data Approach," Working Papers 2004.26, Fondazione Eni Enrico Mattei.
    13. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    14. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
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