Empirical Evidence on Tourism, Geopolitical Risk and Economic Policy Uncertainty Relationships in Malaysia

Abstract

Malaysia, celebrated for its rich cultural diversity, vibrant cities, and pristine natural landscapes, stands prominently on the global tourism map. However, the tourism industry is susceptible to the impact of geopolitical risk and economic policy uncertainty. These external factors, shaped by global events and policy changes, can significantly influence the tourism landscape in Malaysia. Given this significance, the study aims to empirically investigate the cointegrating relationship between international inbound tourism levels (tourist arrivals), geopolitical risk (GPR index), and economic policy uncertainty (EU index) in Malaysia. The analysis uses quarterly observations from the first quarter of 2000 to the fourth quarter of 2022. The study employs the Granger Causality test, supported by structural VAR impulse functions and variance decomposition analysis to illustrate how economic policy uncertainty responds to shocks in tourist arrivals. The significant causal relationship observed moves from tourist arrivals to economic policy uncertainty. In other words, the study implies that variations in tourist arrivals have a lasting impact on economic policy uncertainty but not necessarily on geopolitical risk. This study provides valuable implications for policy planning and decision-making. Policymakers should consider the implications of shifts in tourism patterns for economic policy uncertainty. The absence of a long-term relationship between tourist arrivals and geopolitical risk may suggest conducting separate risk assessments to manage geopolitical risks that may affect the tourism industry in Malaysia.