Abstract

Tourism-led growth hypothesis argues that international tourism is a source of economic advancement through generating foreign currency, creating employment opportunities, stimulating greater investments in infrastructure and inspiring the development of other economic sectors that ultimately improved the living standard of the citizens of a country. Knowing the importance of tourism sector, Ethiopia has taken this sector as a strategy to achieve its short and long run economic objectives. Therefore, the principal objective of this study is to validate the Tourism-Led growth hypothesis (TLGH) in Ethiopia over the annual period 1991-2018. To attain the envisaged objective, the standard Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests were applied to check the stationarity of each series. To scrutinize the long run relationship between tourism and economic growth, ARDL bound test of cointegration was applied. In addition, pairwise Granger causality test was used to identify the direction of causality between tourism receipt and economic growth. The empirical findings confirm the existence of long run relationship between tourism receipt, economic growth and other control variables. The results of the pairwise Granger causality also predicted unidirectional causality running from tourism receipt to economic growth in long run. This validates the tourism-led growth hypothesis for Ethiopia. Hence, policy makers should focus on promoting and development of the untapped tourism industry of the country to augment economic growth in Ethiopia. Keywords : Tourism, economic growth, cointegration, pairwise causality DOI : 10.7176/JTHS/45-01 Publication date: December 31 st 2019

Highlights

  • Tourism-led growth hypothesis (TLGH) assumes that the development of international tourism boosts economic growth

  • The findings revealed that tourism has played a key role in driving economic growth in Vietnam economy

  • The mean of GDP per capita growth (PCGDPg), Gross Capital Formation growth (RGCFg), tourism receipt as a % of total export (TOUR) and secondary school enrollment growth (ENROLg) are about 4.14 %, 13.57%, 27.42 and 7.05% respectively

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Summary

Introduction

Tourism-led growth hypothesis (TLGH) assumes that the development of international tourism boosts economic growth. In addition to providing direct employment creation in the hotel and restaurant industries, it creates employment in other sectors through its externality on other sector such as agriculture, manufacturing, and food processing and service sectors such as banking, foreign exchange transactions, transportation, communication (Kammas and SalehiEsfahani, 1992). It can improve the current account balance through generating foreign currency (Oh, 2005). Khalil, Kakar, and Malik (2007) argued that tourism industry can boost household’s income and government revenues through multiplier effects

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