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Does Tourism-led Growth Hypothesis Exist in Pakistan? A Fresh look from Combine Cointegration and Causality Approach with Structural Breaks

Listed author(s):
  • Ahad, Muhammad

Purpose: The prime objective of this study is to re-investigate the tourism-led growth hypothesis by accommodating structural breaks over the annual period 1988-2014 for Pakistan. This study used two measure of tourism development -tourist arrivals and tourism expenditure per capita to explore the relationship between tourism and economic growth. Methodology: The unit root problem is tested by applying Ng-Perron unit root test. However, Perron, (1997) single structural break and Clemente et al. (1998) double structural breaks unit root tests also employed. To examine the long relationship between tourism and economic growth, we applied newly invented Bayer-Hanck, (2013) combine cointegration approach in the presence of structural breaks. The robustness of combine cointegration approach is tested by Johansen cointegration technique. Further, VECM Granger causality is used to understand the direction of causality during structural shocks. Findings: We found all data series stationary at first difference. The empirics confirm the existence of long run relationship between underlying variables in the presence of structural breaks. The results of VECM Granger causality predicted unidirectional causality running from tourism development (tourist arrives) to economic growth in long run as well as short run when. But, bidirectional relationship between tourism development (tourism expenditure) and economic growth has found. This validates the tourism-led growth for Pakistan. Recommendations: Policy makers should focus on development of tourism industry to enhance economic growth for Pakistan.

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File URL: https://mpra.ub.uni-muenchen.de/72430/1/MPRA_paper_72430.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 72430.

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Date of creation: 2016
Date of revision: 2016
Publication status: Published in International Journal of Economics and Empirical Research 2.4(2016): pp. 94-111
Handle: RePEc:pra:mprapa:72430
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  8. LEE, Chew Ging, 2008. "Tourism And Economic Growth: The Case Of Singapore," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 8(1), pages 89-98.
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  17. Jalil, Abdul & Mahmood, Tahir & Idrees, Muhammad, 2013. "Tourism–growth nexus in Pakistan: Evidence from ARDL bounds tests," Economic Modelling, Elsevier, vol. 35(C), pages 185-191.
  18. 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.
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  20. Shahbaz, Muhammad & Kumar, Ronald Ravinesh & Ivanov, Stanislav & Loganathan, Nanthakumar, 2015. "Nexus between Tourism demand and output per capita with relative importance of trade and financial development: A study of Malaysia," MPRA Paper 67226, University Library of Munich, Germany, revised 11 Oct 2015.
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