ECONOMETRIC MODELING TO DETERMINE THE IMPACTS OF TOURISM AND HOSPITALITY SECTOR DEVELOPMENT ON ECONOMIC GROWTH: A THEORETICAL FRAMEWORK
DOI:
https://doi.org/10.35774/jee2025.02.178Keywords:
cointegration, economic growth, error correction term, Granger causality, long-run and short-run elasticities, response function, tourism and hospitality sector development, unit root, VEC model.Abstract
This study employs dynamic cointegration and causal analysis to investigate the relationship between the development of the tourism and hospitality sector and economic growth in Bangladesh, based on time series data from 1972 to 2023. The findings confirm the existence of a long-run cointegration relationship between the development of the tourism-hospitality sector and economic growth, as demonstrated by the results of the Johansen and Juselius test and the VEC model estimation. The error correction term is statistically significant when economic growth is treated as the endogenous variable, further supporting this finding. GMM estimates indicate that a 100% increase in the development of the tourism-hospitality sector leads to a 0.46% rise in economic growth. The short-run effect of the variable tourism development is negative and not statistically signifi cant. When per capita real GDP deviates from its equilibrium level, it adjusts by 61.86% within the first year, which is statistically significant, with full convergence in less than two years. Estimated elasticities imply that the tourism-hospitality sector development will contribute to more economic growth over time. The CUSUM and CUSUMSQ tests show that the model can be used for policy-making. The estimated impulse response function shows that a one-standard-deviation shock in tourism-hospitality sector development leads to a positive economic growth response over the next ten years. These findings suggest that the development of the tourism-hospitality sector has a lasting and favorable impact on Bangladesh’s long-term economic growth. The government and other stakeholders should therefore implement effective measures to support this sector to accelerate the country’s overall economic development.
JEL: C23, C32, C33, O50, O55, O57, Q40.
References
Akter, H., H., Akhtar, S., & Ali, S. (2017). Tourism demand in Bangladesh: Gravity model analysis. Tourism, 65(3), 346-360. https://hrcak.srce.hr/file/275672
Ali, M. M., & Sifat-e-Mohsin, C., (2008). Different aspects of tourism marketing strategies with special reference to Bangladesh: An analysis. Khulna University Business Review – A Journal of Business Administration Discipline, 6(1/2) 91-106. https://doi.org/10.35649/KUBR.2008.6.12.8
Ali, M. B. (2013). Socio-economic impacts of tourism development: An empirical study on Cox’s Bazar. Asian Journal of Business and Management, 1(4), 205–211. https://www.ajouronline.com/index.php/AJBM/article/view/567
Amin, S. B., Murshed, M., & Rahman, S. (2017, February 7). Role of rural tourism development in Bangladesh economy. The Daily Sun. https://www.dailysun.com/ printversion/details/204066
Andriotis, K. (2002). Options in tourism development: Conscious versus conventional tourism. Anatolia: An International Journal of Tourism and Hospitality Research, 13(1), 73-85. https://doi.org/10.1080/13032917.2002.9687016
Asian Development Bank. (2025). Basic statistics 2025 [Dataset]. https://data.adb.org/ dataset/basic-statistics
Bhuiyan, A. H., & Darda, A. (2018). Prospects and potentials of halal tourism development in Bangladesh. Journal of Tourismology, 4(2), 93–106. https://dergipark.org.tr/en/pub/iuturizmoloji/issue/41370/524660
Blake, A., Sinclair, M. T., & Campos Soria, J. A. (2006). Tourism productivity: Evidence from the United Kingdom. Annals of Tourism Research, 33(4), 1099- 1120. https://doi.org/10.1016/j. annals.2006.06.001
Campbell, J. Y., & Perron, P. (1991). Pitfalls and opportunities: What macroeconomists should know about unit roots. In O. J. Blanchard & S. Fischer (Eds.), NBER Macroeconomics Annual 1991 (pp. 141–201). MIT Press.
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427-431. https://doi.org/10.1080/01621459.1979.10482531
Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057–1072. https://doi.org/10.2307/1912517
Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251–276. https://doi.org/10.2307/1913236
Fuller, W. A. (1976). Introduction to Statistical Time Series. Wiley. https://doi.org/ 10.1002/9780470316917
Habib, S. S., Sharif, M. S., & Hossain, M. A. (2019). Nexus between economic growth, tourism revenue and financial development in Bangladesh: A time series analysis. Macrothink Institute, Business and Economic Research, 9(3), 134-149. https://doi.org/10.5296/ber.v9i3.15068
Hassan, M. R., Ullah, M. M., & Chowdhury, M. S. A. (2013). Impact of tourism in Bangladesh economy. World Journal of Social Sciences, 3(6), 45-57. https://tinyurl.com/2pzdc896
Horaira, M. A., & Devi, A. (2021). Cultural tourism in Bangladesh, a potential and profound tourism destination: Developing a model for cultural tourism development in Bangladesh. International Tourism and Hospitality Journal, 4(10), 1-22. https://doi.org/10.37227/ITHJ-2021-08-1187/
Hossain, M.S. and Kanon, K.S. (2023, November). A parametric model of tourism demand of Bangladesh (Research Project, No. 56). Bureau of Business Research, Faculty of Business Studies, University of Dhaka. ISBN: 978- 984-35-5268-6.
Granger, C. W. J., & Newbold, P. (1974). Spurious regressions in econometrics. Journal of Econometrics, 2(2), 111–120. https://doi.org/10.1016/0304- 4076(74)90034-7
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration – with application to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. https://doi.org/10.1111/ j.1468-0084.1990.mp52002003.x
Khan, A., Amin, S., Ahmed, A., & Sultana, T. (2021). Tourism development and economic growth in Bangladesh: New evidence from nonlinear autoregressive distributed lag. International Journal of Economics and Financial Issues, 11(2), 100-107. https://doi.org/10.32479/ijefi.11040
Kobra, M. K., Bhuiyan, K. H., & Zayed, N. M. (2018). Well and woes of tourism promotion in Bangladesh: Investment perspective. Academy of Accounting and Financial Studies Journal, 22(3), 1-8. https://www.abacademies.org/ articles/well-and-woes-of-tourism-promotion-in-bangladesh-investmentperspective-7256.html
Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54(1–3), 159–178. https://10.1016/0304-4076(92)90104-Y
MacKinnon, J. G. (1991). Critical values for cointegration tests. In R. F. Engle & C. W. J. Granger (Eds.), Long-run economic relationships: Readings in cointegration (pp. 267–276). Oxford University Press.
Mondal, M. S. H. (2017). SWOT analysis and strategies to develop sustainable tourism in Bangladesh. UTMS Journal of Economics, 8(2), 159-167. https://www.econstor.eu/bitstream/10419/195304/1/1011397595.pdf
Nelson, C. R., & Kang, H. (1981). Spurious periodicity in inappropriately detrended time series. Econometrica, 49(3), 741–751.
Perron, P. (1989). The great crash, the oil price shock, and the unit root hypothesis. Econometrica, 57(6), 1361–1401. https://doi.org/10.2307/1913712
Phillips, P. C. B. (1986). Understanding spurious regressions in econometrics. Journal of Econometrics, 33(3), 311–340. https://doi.org/10.1016/0304- 4076(86)90001-1
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346.
Punia, B. K. (1994). Tourism management: Problems and prospects. A. P. H. Publishing Corporation.
Rhaman, M. R. (2016, May). The socio-economic importance of tourism and its impact on the livelihood in South Asia: Case Rangamati, Bangladesh
[Bachelor`s thesis]. Centria University of Applied Sciences. https://www.theseus.fi/bitstream/handle/10024/116404/Rezaur_Rhaman.pd f?sequence=1&isAllowed=y
Redwan, S. (2014). Tourism & socio-economic development: Focus on Bangladesh, a destination country.
Roy, S. C., & Roy, M. (2015). Tourism in Bangladesh: Present status and future prospects. International Journal of Management Science and Business Administration, 1(8), 53–61. https://doi.org/10.18775/ijmsba.1849-5664- 5419.2014.18.1006
Sayeda, T. (2017). The effects of mass tourism: An evaluative study on Cox’s Bazar, Bangladesh. IOSR Journal of Humanities and Social Science, 22(5), 31–36. https://doi.org/10.9790/0837-2205023136
Stock, J. H., & Watson, M. W. (1988). Variable trends in economic time series. Journal of Economic Perspectives, 2(3), 147–174.
Sultana, S. (2016). Economic contribution of tourism industry in Bangladesh. Journal of Tourism, Hospitality and Sports, 22, 45-54. https://core.ac.uk/ download/pdf/234696876.pdf
Tuhin, W. K. M., & Majumder, M. T. H. (2011). An appraisal of the tourism industry development in Bangladesh. European Journal of Business and Management, 3(3), 287-298. https://www.iiste.org/Journals/index.php/EJBM/ article/view/284/166
World Tourism Organization. (2014). UNWTO tourism highlights: 2014 edition. https://doi.org/10.18111/9789284416226
World Travel and Tourism Council. (2025, April 28). Bangladesh travel & tourism economic impact factsheet. https://researchhub.wttc.org/product/factsheetbangladesh-travel-tourism-economic-impact
WorldData Info. (n.d.). Tourism in Bangladesh. https://www.worlddata.info/asia/ bangladesh/tourism.php
World Bank Group. (n.d.). Data: Indicators [Interactive database]. http://data.worldbank.org/indicator/
World Economic Forum. (2024, May). Travel & Tourism Development Index 2024: Insight Report. https://www3.weforum.org/docs/WEF_Travel_and_Tourism_ Development_Index_2024.pdf
Zivot, E., & Andrews, D. W. K. (1992). Further evidence on the great crash, the oil price shock, and the unit root hypothesis. Journal of Business & Economic Statistics, 10(3), 251–270. https://doi.org/10.1080/07350015.1992.10509904
Received: May 16, 2025.
Reviewed: June 3, 2025.
Accepted: June 17, 2025.
Downloads
Published
How to Cite
Issue
Section
License
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
