Dynamic inter-relationships among tourism, economic growth and energy consumption in India

Abstract

This study attempts to explore the dynamic causal and inter-relationships among tourism, economic growth and energy consumption in India. This study covers the annual data from 1971 to 2012. This study applies the cointegration and generalised variance decomposition methods to verify the relationship. The bounds testing approach to cointegration and the Gregory-Hansen test for cointegration with structural break consistently reveal that energy consumption, tourism and economic growth in India are cointegrated. We find that tourism and economic growth strongly affects energy consumption in the long-run. Additionally, we also find that tourism and economic growth in India are inter-related, but the causal effect of tourism on economic growth is stronger than the other way around in both the short-and long-run. Therefore, this study concludes that the tourism-led growth hypothesis is valid but the energy-led growth hypothesis is invalid in India. With such findings, we can confirm that tourism is an important catalyst of growth to the Indian economy. Therefore, policymakers should promote and expand tourism industry in order to sustain the process of economic growth and development in India.Keywords: Cointegration; Economic growth; Energy consumption, Tourism; Variance decomposition 2 INTRODUCTIONOver the past decades, many studies pertaining to the engines of growth have been conducted with respect to developing countries. This is mainly due to the reason that they attempt to find an effective pillar to upgrade their status to developed countries. From our reading, we observe that energy and tourism are two common factors that hotly debated in the economic growth literature. Numerous studies have been conducted to verify the role of energy consumption and tourism in economic growth. However, their efforts failed to find a consistent causal relationship among economic growth, tourism and energy consumption.Some studies suggested that energy consumption and tourism stimulate long-term economic growth (e.g. Lean and Smyth, 2010;Lean and Tang, 2010;Hye and Khan, 2013;Tang and Shahbaz, 2013;Soares et al., 2014;, while other studies claimed the other way around or not related at all (e.g. Cheng, 1999;Ghosh, 2002;Oh, 2005; Katircioğlu, 2009;Alam et al., 2011;Ghosh, 2011;Ozturk and Acaravci, 2009). Therefore, it is very hard to derive a useful guideline for policymakers elsewhere to design appropriate growth policies for their economies.Apart from the ambiguity in the results, almost all existing studies likely to look at the impacts of energy consumption and tourism on economic growth separately, where these variables should be inter-related in nature. For example, tourism-related infrastructures and facilities require energy (e.g. oil and electricity) to operate them and energy is also one of the inputs of production that may link to economic growth. On the other hand, an increase in output and tourism demand such as tourist arrivals would increase the demand for energy.Then, an increase in international touri...

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