Tourism, Selected Macroeconomics Variables and Economic Growth: An Econometrics of Long Run and Short Run Relationship

Economic growth plays an important role in any country as it leads to increase in standard of living, income per capital, business opportunities, employment level, economic stability, etc. With the great outburst of world tourism in recent years, it is now one of the largest and fastest growing industries in the world which is a potential factor for economic growth. Nevertheless, the yields from this economic activity are different across geographical regions. Since tourism in Malaysia has become the second largest income contributor of foreign exchange after manufacturing, this study attempts to determine whether tourism (in terms of tourism receipts and government tourism expenditure) is crucial for enhancing economic growth in Malaysia from 1974-2010, given production function framework and exports are the control variables. The empirical analysis will be based on Johansen Cointegration for long run relationship and Error Correction Model (ECM) for short run dynamic. Results of long run relationship show all the variables are statistically significant and positively related to economic growth except exports and government tourism expenditure. Error correction model (ECM) for short run dynamic reveals only tourism receipts and government tourism expenditure are significant and positively related to economic growth.