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Does Tourism-led Growth Hypothesis exist in Pakistan? A Freshlook from Combine Cointegration and Causality Approach with Structural Breaks

Muhammad Ahad ()

International Journal of Economics and Empirical Research (IJEER), 2016, vol. 4, issue 2, 94-111

Abstract: Purpose: The prime objective of this study is to re-investigate the tourism-led growth hypothesis by accommodating structural breaks over the annual period 1988-2014 for Pakistan. This study used two measure of tourism development -tourist arrivals and tourism expenditure per capita to explore the relationship between tourism and economic growth. Methodology: The unit root problem is tested by applying Ng-Perron unit root test. However, Perron, (1997) single structural break and Clemente et al. (1998) double structural breaks unit root tests also employed. To examine the long relationship between tourism and economic growth, we applied newly invented Bayer-Hanck, (2013) combine cointegration approach in the presence of structural breaks. The robustness of combine cointegration approach is tested by Johansen cointegration technique. Further, VECM Granger causality is used to understand the direction of causality during structural shocks. Findings: We found all data series stationary at first difference. The empirics confirm the existence of long run relationship between underlying variables in the presence of structural breaks. The results of VECM Granger causality predicted unidirectional causality running from tourism development (tourist arrives) to economic growth in long run as well as short run when. But, bidirectional relationship between tourism development (tourism expenditure) and economic growth has found. This validates the tourism-led growth for Pakistan. Recommendations: Policy makers should focus on development of tourism industry to enhance economic growth for Pakistan.

Keywords: : Tourism; Economic Growth; Pakistan (search for similar items in EconPapers)
JEL-codes: L83 (search for similar items in EconPapers)
Date: 2016
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