Verifying Tourism-Led Growth Hypothesis (TLGH) in Ethiopia: Time Series Analysis

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