International tourism receipt and economic growth of Ethiopia: empirical analysis

Abstract

In recent years, tourism has become an important economic activity almost in all the countries of the world. It creates various direct, indirect and induced effects in the economy. Therefore, this paper investigates the relationship between international tourism revenue and economic growth, and their causality in Ethiopia using time series data over the period 1974-2017. Johansen's Co-integration test has been employed for the existence of a long-run relationship among the variables and VECM short-run dynamics. Granger Causality test has also been applied to examine the causal relationship between these variables. The results from Johansen co-integration test reveals a positive and statistically significant relationship between international tourism receipts and economic growth which is in support of tourism lead growth hypothesis for Ethiopian case. The Granger causality test also shows unidirectional relationship running from tourism receipt to economic growth in Ethiopia which is in the support of Tourism Lead Growth Hypothesis (TLGH). The speed of adjustment indicates 22.11% of the short run adjustment is made per year towards long-run equilibrium. Based on the findings the researcher suggests that the government should further improve and sustain tourism sector in order to generate the long run higher economic growth.