Is tourism a catalyst of growth in Egypt? Evidence from Granger non-causality and the generalised variance decomposition analysis

Abstract

This study attempts to analyze the role of tourism in economic growth in Egypt over the period of 1982–2011. Our empirical results reveal that economic growth, tourism, and capital stock are cointegrated. The results of TYDL causality tests indicate that tourism and economic growth is bi-directional causality. Furthermore, we find that that tourism explained most of the variation in economic growth, especially in the long-run. Therefore, we conclude that the tourism-led growth hypothesis is valid and tourism expansion would effectively stimulate long-term economic growth in Egypt. As a policy implication, Egypt should improve its economic growth performance by strategically improving the contribution of the tourism industry.

Keywords:

• Tourism-led growth
• economic growth
• causality
• Egypt
• variance decomposition

Acknowledgement

We would like to thank the two anonymous reviewers for their criticisms and suggestions on an earlier draft of this research paper which helped to improve it. We would also like to acknowledge Salaheddin Abosedra and Wai Ching Poon for their help and knowledge sharing in the initial stage of this research. Whatever shortcomings that remain in this paper are purely ours.