Tourism-Led Growth: Empirical Insights from Nepal's Economy

Abstract

This study empirically investigates the long-term and short-term effects of tourism on economic growth and financial development in Nepal. The study employs data set of Nepal from 2000-2017.  The econometric models used to ascertain short- and long-term relationship are regression equation, ARDL technique, ADF and error correction model. Fisher statistic has been used to measure long-run association. All variables are stationary at first difference I (1) , consequently ARDL model is applied to analyze co-integration among endogenous and exogenous variables. The results of econometric test, developed by Bayer and Hank joint confirm that tourism, economic growth and financial development are co-integrated.  Suffice to that, empirical results suggest that there is a long-term one-way Granger causality from tourism to economic growth. This means that inbound tourism revenues are ahead of GDP growth in Nepal.  The results of the error correction factor indicate that pace of adjustment rate from short-term to long term is 35% which is encouraging. Based on the findings, the study recommends promotion of international tourism in Nepal as it is providing impetus to the economy. Similarly, the policy makers should also chalk out the policies that augment the inbound tourism in the country to promote economic development.