Tourism and Economic Growth in Bangladesh

An Empirical Investigation of Causal Links

Abstract

Tourism is now regarded as a driving force for economic development in developing nations. Tourism has a
direct impact on job creation and infrastructure development. It has also an indirect impact on agriculture,
manufacturing, financial services, transport, trade and communications. That is why tourism is often coined as
‘limitless growth potential. Although a good number of empirical studies on the contribution of the tourism
sector in the overall economic development in Bangladesh have already been conducted in recent years. No
research has been undertaken to investigate the causal relationship between the tourism sector and economic
growth. This research fills the gap. This research uses a disaggregated approach to investigate the effect of both
domestic tourists and international tourists on economic growth. The data sources for this research are
secondary in nature. This study examines the causal relationship between the tourism sector and economic
growth for the economy of Bangladesh by using the Augmented Dickey-Fuller Test (ADF) and Phillips–Perron
(PP) test, Cointegration approach, Granger Causality test during the period of 1995 to 2019. Here, the
cointegration and Granger causality test are applied to explore the direction of the causality. The study results
show a long-run cointegration relationship between the tourism sector and economic growth for Bangladesh. It
also shows that long-run unidirectional causality exists running from domestic tourists and international tourists
to economic growth, and bidirectional causality exists between international and domestic tourists.The research
results show that both domestic and international tourism promotes economic growth. These findings suggest
that paying attention to domestic tourism could rapidly increase the tourism sector’s share of GDP growth along
with inbound tourism.