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

Author

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  • Andreas G. Georgantopoulos

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

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.

Suggested Citation

  • Andreas G. Georgantopoulos, 2013. "Tourism Expansion and Economic Development: Var/Vecm Analysis and Forecasts for the Case of India," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(4), pages 464-482, April.
  • Handle: RePEc:asi:aeafrj:2013:p:464-482
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Ahad, 2016. "Does Tourism-led Growth Hypothesis exist in Pakistan? A Freshlook from Combine Cointegration and Causality Approach with Structural Breaks," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 4(2), pages 94-111, February.

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    Keywords

    Tourism; Economic Growth; Cointegration; Forecasts; India;

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