The Causal Relationship between Tourism and Economic Growth in Malaysia: Evidence from Multivariate Causality Tests

Abstract

Tourism industry and economic growth of a particular country are to some extent, interrelated. The aim of this study is to investigate the Malaysian experience of (possible) significant causal relationship between growth in its international tourism receipts and real economic growth. Based on the sample period of 1994 through 2004, the data are examined by using multivariate causality tests. Major finding of the study is twofold: First, international tourism receipts and real economic growth are found to be significantly cointegrated. Secondly, multivariate causality test based on the error correction model reveals that the Granger causality between international tourism receipts and real economic growth is unidirectional - running from real economic growth to international tourism receipts. The practical implication that could be conceived from this'growth-led tourism' finding is that, as the Malysian economy is growing, accelerated growth of socio-economic activities as well as business opportunities in its tourism related sectors could be expected.