Long-Run Relationship Between Economic Development and International Tourism in Pakistan

Abstract

This article examines the link between economic development and international tourism in the context of Pakistan. The study uses Autoregressive Distributed Lag tests (ARDL) for the long-term relationship; the short-term relationship is examined with Error Correction model, and the VECM-Granger causality to determine the direction of the causal flow. The study uses annual data from the CEIC and World Bank databases for the period 1990-2017. The novelty stems from the perspective that there is no formal evidence on long-run dynamics between economic development indicators and international tourism from Pakistan. It contributes to the existing literature on this vital phenomenon. The empirical results document the long-term and short-term association between the variables. We also find a two-way causal flow between economic development and tourism. In addition, it offers policy implications for focusing on three economic dimensions, e.g. economic development, financial development, and stock market development, which subsequently attracts international tourism. Intuitively, promulgates National culture and image across borders and strengthens the National Treasury as well.