Does Tourism Influence Financial Development in Kenya?

Mt Musakwa () and N.M. Odhiambo ()
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Mt Musakwa: University of South Africa
N.M. Odhiambo: University of South Africa

Working Papers from African Economic and Social Research Institute (AESRI)

Abstract: In this study, we investigate the impact of tourism on financial development in Kenya using time series data from 1995 to 2017. The study uses the autoregressive distributed lag (ARDL) bound testing approach to cointegration and error correction model to examine this linkage. To increase the robustness of the results, the study uses two proxies of financial development, namely broad money (bank-based financial development proxy) and total value of stocks traded (market-based financial development proxy). Results show that tourism has an insignificant impact on financial development in Kenya – both in the short and in the long run. The results apply irrespective of whether the financial development is proxied by a bank-based financial development indicator or by a market-based financial development indicator. This finding points to the fact that, although tourism is one of the main sources of foreign exchange in Kenya, it has no direct impact on financial development. The findings from this study add value to policy makers in Kenya by revealing the insignificant impact tourism has on financial development, although it is contrary to other studies that found a positive contribution. Based on the findings, Kenya may not anchor its financial development policies on tourism.

Pages: 27 pages
Date: 2022-06, Revised 2022-06
New Economics Papers: this item is included in nep-fdg and nep-tur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://aeri.co.za/RePEc/afa/afa-wpaper/AESRIWP15B.pdf Revised version, 2022 (application/pdf)

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