Tourism-Led Growth Hypothesis: A Case Study of Pakistan

Abstract

Economists are of the view that tourism leads to economic development just like human and physical capital and exports. A few studies have discussed this issue empirically. The current study aims to estimate the long-run relationship between income from tourism and the economic growth of Pakistan by using the annual time series data of 1971–2008, and by employing the Johansen Juselius cointegration, autoregressive distributed lag model and rolling windows bounds testing approach to check the stability of the model. The results confirm the long-run relationship between income from tourism and economic growth and explain that income from tourism has led economic growth in Pakistan except in the years 2006, 2007, and 2008.

Keywords:

• tourism
• Pakistan
• ARDL
• economic growth
• rolling windows technique

Notes

For instance, for unidirectional causality from tourism earnings/growth to economic growth, see Balaguer and Cantavella-Jorda (2002) for Spain; Eugenio-Martin et al. (2004) for high- and medium-income Latin American countries; Gunduz and Hatemi (2005) for Turkey; Lee and Chang (2008) for OECD countries and Brida et al. (2010) for a region of northeast of Italy. For bidirectional causality, there are evidences of Dritsakis (2004) for Greece and Lee and Chang (2008) for non-OECD countries.

The other studies, which have focused on blocks or groups of countries, are Eugenio-Martin et al. (2004) for Latin America, Lee and Chang (2008) for OECD and non-OECD countries and Cortes-Jimenez et al. (2009) for developing countries.

See also the studies focusing on individual economies (Cantavella-Jorda, 2002, for Spain; Durbarry, 2002, for Mauritius; Zortuk, 2009, for Turkey).

Tourism receipts are a common proxy to measure tourism growth. A number of studies have used this measure (see, for instance, Balaguer & Cantavella-Jorda, 2002; Birda et al. 2010; Gunduz & Hatemi, 2005; Fayissa et al. 2007). Proenca and Soukiazis (2005) used the bed capacity in hotels as a proxy for tourism. However, alternative proxies may be the volume of the international tourist's arrivals and the ratio of tourism revenue to GDP. To make a comparison of tourism to the exports for particular economies, there would be a good proxy of ratio of tourism revenue to export revenue. Similarly, to see the expansion capacity of the tourism for an economy and the comparisons of it with other economies the ratio of the tourists to the national population may be the good proxy. For such analysis, Dubai may be a good specimen for analysis.

Whatever technique and tests are utilized, when the studies are concerned with causality relationship between earnings and economic growth, one of the drawbacks of such analysis may be that share of the tourism in GDP or the positive relationship between the receipts form tourism and GDP possibly be due to stagnation of other industries (Ivanov & Webster, 2006). As a result, a broader view on the analysis of interaction between tourism and GDP is required.

The relative growth of export and tourism may represent the relative importance of the sector but more important may be their contribution in economic growth. So a comparative study of contribution of each sector or inclusion of both in the analysis simultaneously may be more useful for policy-makers for the adequate promotion of the selected sector.

Because the different window sizes give different results.