The impact of tourism on deficit in balance of payments of Pakistan: an application of bounds testing approach to cointegration

ABSTRACT

The current study is intended to analyze the long-run relationship between deficit in balance of payments (BOPs) and tourism for the period of 1976–2015 using the autoregressive distributed lag (ARDL) model. The findings of the paper exposed an indirect relationship between tourism and BOP deficit in the context of Pakistan economy, while deficit balance of trade, real effective exchange rate, and deficit in fiscal balance have a positive and significant association with the deficit in the BOPs in the long run. Based on the findings, it is recommended that policies should be devised that promote the tourism industry of Pakistan as it would be helpful in reducing the deficit in the BOPs.

KEYWORDS:

• Tourism industry
• deficit in balance of payment
• cointegration
• balance of trade
• real effective exchange rate
• fiscal balance

JEL Classification:

• C01
• H62
• L83

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Muhammad Saeed Meo http://orcid.org/0000-0002-8340-0442

Notes

1 Augmented Dickey–Fuller

2 Phillips–Perron

3 Cumulative Sum of Recursive Residuals

4 Cumulative Sum of Square of Recursive Residuals