The nexus between tourism demand and output per capita with the relative importance of trade openness and financial development: a study of Malaysia

Abstract

This article revisits the tourism-growth nexus in Malaysia using time series quarterly data over the period 1975–2013. The authors examine the impact of tourism using two separate indicators – tourism receipts per capita and visitor arrivals per capita. Using the augmented Solow production function and the autoregressive distributed lag bounds procedure, they also incorporate trade openness and financial development and account for structural breaks in series. The results show the evidence of cointegration between the variables. Assessing the long-run results using both indicators of tourism demand, it is noted that the elasticity coefficient of tourism is 0.13 and 0.10 when considering visitor arrivals and tourism receipts (in per capita terms), respectively. Notably, the impact of tourism demand is marginally higher with visitor arrivals. The elasticity of trade openness is 0.19, that of financial development is 0.09 and that of capital share is 0.15. In the short run, the coefficient of tourism is marginally negative, and for financial development and trade openness, it is 0.01 and 0.18, respectively. The Granger causality tests show bidirectional causation between tourism and output per capita, financial development and tourism and trade openness and tourism demand, duly indicating the feedback or mutually reinforcing impact between the variables and providing evidence that tourism is central to enhancing the key sectors and the overall income level.