Tourism, trade and growth: the case of Cyprus

Abstract

Although the relationship between international trade and economic growth has found a wide application area in the literature over the years, this can not be said about tourism and growth or trade and tourism. This study employs the bounds test for cointegration and Granger causality tests to investigate a long-run equilibrium relationship between tourism, trade and real income growth, and the direction of causality among themselves for Cyprus. Results reveal that tourism, trade and real income growth are cointegrated; thus, a long-run equilibrium relationship can be inferred between these three variables. On the other hand, Granger causality test results suggest that real income growth stimulates growth in international trade (both exports and imports) and international tourist arrivals to the island. Furthermore, growth in international trade (both exports and imports) also stimulates an increase in international tourist arrivals to Cyprus. And finally, real import growth stimulate growth in real exports in the case of Cyprus.

Acknowledgements

The author would like to thank to Professor Hasan Ali BICAK (Dean of Faculty of Business and Economics, Eastern Mediterranean University, North Cyprus) and Professor Serhan CIFTCIOGLU (Department of Business Administration, Eastern Mediterranean University, North Cyprus) for their continuous support and encouragement in every stage of his researches and academic life.

Notes

¹PP approach allows for the presence of unknown forms of autocorrelation with a structural break in the time series and conditional heteroscedasticity in the error term.

²Rybinski (1994) also provides the appropriate critical values for small samples.

³For detailed information, please refer to Pesaran et al. (2001), pp. 295–96.