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Does Tourism Influence Financial Development In Kenya

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  • Mercy T. Musakwa

  • Nicholas M Odhiambo

Abstract

In this study, we investigate the impact of tourism on financial development in Kenya using time series data from 1995 to 2017. The study uses the autoregressive distributed lag (ARDL) bound testing approach to cointegration and error correction model to examine this linkage. To increase the robustness of the results, the study uses two proxies of financial development, namely broad money (bank-based financial development proxy) and total value of stocks traded (market-based financial development proxy). Results show that tourism has an insignificant impact on financial development in Kenya – both in the short and in the long run. The results apply irrespective of whether the financial development is proxied by a bank-based financial development indicator or by a market-based financial development indicator. This finding points to the fact that, although tourism is one of the main sources of foreign exchange in Kenya, it has no direct impact on financial development. The findings from this study add value to policy makers in Kenya by revealing the insignificant impact tourism has on financial development, although it is contrary to other studies that found a positive contribution. Based on the findings, Kenya may not anchor its financial development policies on tourism.

Suggested Citation

  • Mercy T. Musakwa & Nicholas M Odhiambo, 2022. "Does Tourism Influence Financial Development In Kenya," Working Papers 2202, African Economic and Social Research Institute (AESRI).
    • Handle: RePEc:afa:wpaper:2202
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    References listed on IDEAS

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    1. Jarita Duasa, 2007. "Determinants of Malaysian Trade Balance: An ARDL Bound Testing Approach," Global Economic Review, Taylor & Francis Journals, vol. 36(1), pages 89-102.
    2. Muhammad Shahbaz & Ramzi Benkraiem & Anthony Miloudi & Aviral Kumar Tiwari, 2019. "Tourism-induced financial development in Malaysia: New evidence from the tourism development index," Tourism Economics, , vol. 25(5), pages 757-778, August.
    3. Robert Engle & Clive Granger, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Sheilla Nyasha & Nicholas M. Odhiambo & Simplice A. Asongu, 2021. "The Impact of Tourism Development on Economic Growth in Sub-Saharan Africa," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 33(6), pages 1514-1535, December.
    5. Sheilla Nyasha & Nicholas M Odhiambo, 2014. "Bank-based financial development and economic growth," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 6(2), pages 112-132, May.
    6. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    7. Çağatay Başarir & Yasin Nuri Çakir, 2015. "Causal Interactions Between CO2 Emissions, Financial Development, Energy and Tourism," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(11), pages 1227-1238.
    8. Çağatay Başarir & Yasin Nuri Çakir, 2015. "Causal Interactions Between Co2 Emissions, Financial Development, Energy and Tourism," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(11), pages 1227-1238, November.
    9. Muhammad Shahbaz & Ronald Ravinesh Kumar & Stanislav Ivanov & Nanthakumar Loganathan, 2017. "The nexus between tourism demand and output per capita with the relative importance of trade openness and financial development," Tourism Economics, , vol. 23(1), pages 168-186, February.
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    Cited by:

    1. Pat Obi & Kwaku Addae-Ankrah & Emmanuel Sarpong-Kumankoma, 2025. "Do Financial Development and Exchange Rates Drive the Tourism–Growth Relationship?," IJFS, MDPI, vol. 13(2), pages 1-22, April.
    2. Ssekitoleko Patrick & Manaliyo Jean Claude, 2024. "Investigating the Effects of Advancements in Information and Communication Technology and Financial Development on Tourism Growth: A Case of South Africa," Folia Oeconomica Stetinensia, Sciendo, vol. 24(2), pages 304-326.
    3. Ramaharo, Franck M., 2025. "The asymmetric impact of tourism on economic growth: empirical evidence from Madagascar," MPRA Paper 126422, University Library of Munich, Germany.

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Z3 - Other Special Topics - - Tourism Economics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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