Does international tourism promote economic growth? Some evidence from Indonesia

Abstract

Realizing an increasing contribution of the tourism sector to global economies, this study intends to enrich the existing tourism literature by empirically exploring the short- and long-run dynamic causalities between tourism and economic growth in Indonesia over the period 1995 to 2017. For these purposes, cointegration, Fully Modified Least Squares (FMOLS), and Granger causality techniques are adopted. The study found a cointegration between tourism and economic growth, indicating the existence of a long-run relationship between the tourism sector and economic growth. In the long-run, tourism has contributed to the promotion of economic growth. Finally, both in the short- and long-run, the study found a unidirectional causal relationship running from tourism to economic growth, confirming the tourism-led growth hypothesis. To enhance Indonesia's economic growth, the tourism sector should be further promoted by making it more attractive, supported by advanced IT facilities, warm hospitality, and diversified tourism objects.