Contribution of international tourism to economic growth of Kerala: a subnational-level analysis in India

ABSTRACT

The study attempts to understand the contribution of international tourism on economic growth at a sub-national level (i.e. for Kerala) of the Indian economy. By exercising Johansen cointegration test and Vector Error Correction Model on the annual data from 1980 to 2017, it reveals the existence of a positive long-run association between tourism and economic growth. It finds that an increase of Foreign Tourist Arrivals (FTA) by 1% leads to almost a same percentage increase in Gross State Domestic Product (by 0.97%) in the long-run. Thus, it suggests that tourism has a significant potential of unleashing the economic growth of Kerala and this is found to be robust with the use of alternative econometric estimation methods.

KEYWORDS:

• International tourism
• economic growth
• cointegration
• Vector Error Correction model
• Kerala

JEL:

• Z32
• Z38

Acknowledgements

The authors acknowledge the critical comments and valuable suggestions offered by the two anonymous reviewers of the paper and also appreciate the suggestions received from the Editor-in-chief of the journal, Prof. Rhodri Thomas.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Statement of contribution

What is the contribution to knowledge, theory, policy or practice offered by the paper?

There is no comprehensive empirical literature examining the contribution of foreign tourists to economic growth at the sub-national level of the Indian economy for a state like Kerala. This study investigates whether foreign tourist arrivals contribute to the economic growth of Kerala in the long-run. It finds that with a 1% increase in Foreign Tourist Arrivals (FTAs), it leads to almost a same percentage increase in the Gross State Domestic Product (by 0.97%). Thus, it suggests that tourism has the significant potential to bring about economic growth success for Kerala.

Notes

1 The major determinants can be investment, human capital, innovation or R&D, economic policies, macro-economic conditions, trade openness, Foreign Direct Investment (FDI), institutional quality, socio-cultural factors, geography and demography (Petrakos & Arvanitidis, 2008).

2 It includes the home stay policy, exemptions in taxation, various incentives and concessions provided to the sector by the government, use of Information and Communication Technologies (ICT) tools like mobile, development of wayside amenities and infrastructure facilities, etc.

3 In 2017–2018, the service sector contributed approximately 61.75% of the Gross State Value Added (Economic Review, 2018). It is comparable with service sector share in total national output at the aggregate level of country.

4 The sector crucially generates employment, enhancing aggregate production levels and productivity and contributing significantly towards the development of the state.

5 Ayurveda, Backwaters and its unique Culture are known as the ‘ABC Tourism Projects’.

6 The major 10 source countries for FTA in Kerala as per 2017 are United Kingdom, United States of America, France, Germany, Saudi Arabia, Oman, Australia, Malaysia, United Arab Emirates and Canada. The CPIs of these countries are averaged and expressed as relative to the CPI of Kerala and alternatively India’s CPI. This is done in the absence of CPI statistics for a state/sub-central economy like Kerala.