Tourism, Sustainability, and Growth: An Empirical Investigation of Long-Run Economic Impacts in Pakistan

Mehdi, Hasan and Ali, Amjad and Audi, Marc (2025): Tourism, Sustainability, and Growth: An Empirical Investigation of Long-Run Economic Impacts in Pakistan.

Abstract

This study investigates the relationship between sustainable tourism practices and economic growth in Pakistan by integrating the principles of endogenous growth theory with robust econometric modeling. Pakistan possesses significant but underutilized tourism resources, including natural landscapes, historical sites, and cultural heritage. However, its tourism sector faces persistent challenges such as political instability, poor infrastructure, and limited environmental planning. Using (International Monetary Fund, Pakistan Bureau of Statistics, World Bank) annual data from 1995 to 2021, this research employs ordinary least squares, autoregressive distributed lag bounds testing, and the vector error correction model to examine how tourism receipts, employment in tourism, political stability, and environmental sustainability influence real GDP. The empirical findings reveal a statistically significant and positive relationship between tourism receipts and GDP growth, reaffirming tourism’s role as a direct driver of economic development. Employment in the tourism sector also demonstrates a meaningful contribution to economic output by enhancing household income and stimulating local consumption. Political stability and environmental sustainability, while less impactful in the short run, are found to be crucial in maintaining long-run equilibrium and ensuring sustainability in the tourism sector through different tests and approaches as concluded in the findings paragraphs. The autoregressive distributed lag model confirms the existence of long-run cointegration among the variables, while the vector error correction model illustrates a moderate but stable adjustment toward long-run equilibrium. This study underscores the need for Pakistan to adopt a coordinated, sustainability-focused tourism policy that emphasizes investment in infrastructure, environmental regulation, institutional reform, and community engagement. It advocates for shifting from volume-based to value-driven tourism strategies. The strategy uses green practices, digital promotion, and decentralized governance to maximize benefits. The findings contribute empirical and policy insights for integrating tourism into national development agendas. Ultimately, sustainable tourism emerges as a strategic avenue for comprehensive, resilient, and environmentally sound economic growth in Pakistan.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sustainable Tourism, Economic Growth, Environmental Sustainability, Political Stability
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Aghion, P., & Howitt, P. (1998). Endogenous growth theory. MIT Press.

Ahiawodzi, A. (2019). Unlocking Ghana's tourism potential: Insights from macroeconomic analysis. Journal of Business and Economic Options, 2(1).

Ahmad, K., Shahid, M., Bhatti, M. K., & Ali, A. (2024). Global Perspectives on Fiscal Policy and Labor Income-Leisure Choices: Theoretical and Practical Insights. Journal of Asian Development Studies, 13(2), 537-554.

Ahmed, K., Rahpoto, S., & Ahmed, F. (2023). Tourism in Pakistan: An economic analysis. Journal of Development and Social Sciences, 5(2), 42–58.

Ahmed, S., Khan, M., & Qureshi, R. (2024). The economic impact of tourism in Pakistan. Pakistan Economic Review, 45(2), 134–152.

Ali, A., & Afzal, M. (2019). Human capital development and economic growth: A panel data analysis. Journal of Policy Options, 2(1).

Almeida, R., Costa, A., & Karim, M. (2024). Governance and green infrastructure: An integrated framework for sustainable tourism growth. Tourism Policy and Development Journal, 18(1), 66–82.

Anwar, M., Yousaf, R., & Qureshi, S. (2025). Institutional quality and the persistence of tourism-driven economic growth. Journal of Development Policy and Practice, 9(1), 41–58.

Assaf, A. G., & Josiassen, A. (2011). Identifying and ranking the determinants of tourism performance using a global DEA-based benchmarking approach. Tourism Management, 32(3), 533–540.

Audi, M. (2024). The impact of exchange rate volatility on long-term economic growth: Insights from Lebanon. Journal of Policy Options, 7(2).

Bashir, H., & Khan, U. M. (2024). Modeling tourism sustainability through VECM: Evidence from South Asian economies. Journal of Tourism and Economic Dynamics, 6(1), 72–89.

Baydur, I. (2024). Sustainable development of regional tourism for economic resilience in Azerbaijan. Journal of Business and Economic Options, 7(3).

Bilal, M., & Adil, A. (2024). Socioeconomic impact of tourism on local communities in Swat. Journal of Sustainable Tourism Development, 12(1), 55–68.

Brida, J. G., Cortés-Jiménez, I., & Pulina, M. (2016). Has the tourism-led growth hypothesis been validated? A literature review. Current Issues in Tourism, 19(5), 394–430.

Brown, R. L., Durbin, J., & Evans, J. M. (1975). Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society: Series B (Methodological), 37(2), 149–192.

Buhalis, D. (2000). Marketing the competitive destination of the future. Tourism Management, 21(1), 97–116.

Bukhari, S., & Iqbal, M. (2024). Political stability and tourism flows in South Asia: An econometric perspective. Asian Economic Review, 45(2), 109–130.

Butler, R. W. (1999). Sustainable tourism: A state‐of‐the‐art review. Tourism Geographies, 1(1), 7–25.

Choi, H. C., & Sirakaya, E. (2006). Sustainability indicators for managing community tourism. Tourism Management, 27(6), 1274–1289.

Diaz, M., & Rodrigues, C. (2016). An empirical analysis of destination competitiveness: The role of governance and sustainability. Tourism Economics, 22(4), 789–806.

Dwyer, L., & Kim, C. (2003). Destination competitiveness: Determinants and indicators. Current Issues in Tourism, 6(5), 369–414.

El-Sahli, M. (2023). Electricity consumption and economic growth in Qatar: Long-term and short-term dynamics. Journal of Energy and Environmental Policy Options, 6(3).

Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251–276.

Farid, H., & Ijaz, M. (2025). Diagnostic accuracy in tourism-led growth modeling: A methodological assessment. Journal of Econometric Applications in Development, 8(2), 88–104.

Fatima, N., & Zaman, A. (2020). Financial development, innovation, and economic growth: Evidence from developing countries. Journal of Policy Options, 3(2).

Fayissa, B., Nsiah, C., & Tadasse, B. (2008). Impact of tourism on economic growth and development in Africa. Tourism Economics, 14(4), 807–818.

Feng, J., & Qi, S. (2024). Digital infrastructure expansion and economic growth in Asian countries. Journal of Business and Economic Options, 7(2).

Fernando, A., & Mazhar, N. (2024). Environmental regulation, green tourism, and destination competitiveness in developing countries. Journal of Tourism and Environmental Economics, 12(1), 48–65.

Gomezelj, D. O., & Mihalic, T. (2008). Destination competitiveness—Applying different models, the case of Slovenia. Tourism Management, 29(2), 294–307.

Gorus, S., & Groeneveld, R. (2018). Vietnam's development trajectory: Threshold cointegration and causality analysis of energy consumption and economic growth. Journal of Energy and Environmental Policy Options, 1(2).

Gössling, S., Hall, C. M., & Weaver, D. (2009). Sustainable tourism futures: Perspectives on systems, restructuring and innovations. Routledge.

Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill Education.

Haider, R., & Yousuf, Z. (2025). Political stability, green governance, and tourism competitiveness: Evidence from South Asia. Tourism Governance and Economic Progress Review, 5(1), 55–70.

Hanvoravongchai, P., & Paweenawat, J. (2025). Economic and Environmental Dynamics in Southeast Asia: The Impact of Tourism, Gross Domestic Product, Foreign Direct Investment, and Trade Openness on Carbon Dioxide Emissions. Journal of Energy and Environmental Policy Options, 8(1).

Hashmi, M., Khan, T., & Aslam, B. (2023). The economic implications of tourism receipts in emerging markets: A panel analysis. Global Journal of Economic Perspectives, 11(3), 211–230.

Hawkins, D. E. (1998). Integrated tourism planning and resource management. Annals of Tourism Research, 25(2), 391–413.

Holden, A. (2016). Environment and tourism (3rd ed.). Routledge.

Honey, M. (2008). Ecotourism and sustainable development: Who owns paradise? Island Press.

Hussain, Z., & Asad, M. (2020). Post-conflict tourism recovery in Swat Valley, Pakistan: Community engagement and sustainable development. Journal of Sustainable Tourism, 28(3), 389–407.

Iqbal, Q., & Nader, M. (2024). Fiscal policy and economic growth in Saudi Arabia: A study of government expenditures and their macroeconomic effects. Journal of Business and Economic Options, 7(3).

Iqbal, R., Khalique, M., & Shoukat, A. (2025). Post-shock adjustments in sustainable tourism economies: A vector error correction approach. Economic Policy and Analysis Review, 10(2), 123–141.

Junaid, S., Aslam, I., & Nawaz, A. (2025). Tourism-led stability: Long-run correction mechanisms in South Asian economies. Journal of Tourism Economics and Policy, 9(1), 38–56.

Kakar, M. K., & Bano, R. (2025). Political institutions and environmental reform as enablers of sustainable tourism in South Asia. Journal of Regional Development Studies, 11(2), 102–119.

Kamran, N., Dar, S. A., & Hameed, Z. (2023). Long-run sustainability and short-term shocks: A VECM application on Pakistan’s tourism sector. South Asian Journal of Economic Modeling, 14(3), 201–220.

Karhan, G. (2019). Investing in research and development for technological innovation: A strategy for Turkey's economic growth. Journal of Business and Economic Options, 2(4).

Kazmi, S. H., Javed, M., & Tanveer, A. (2023). Reassessing tourism sustainability: Cointegration evidence from South Asian economies. Asian Journal of Tourism Economics, 17(4), 188–205.

Khalid, M. A., & Abdul, M. (2025). Green Growth and Human Capital in Bangladesh: Evaluating the Roles of Financial Development and Foreign Direct Investment in Reducing Carbon Emissions. Journal of Energy and Environmental Policy Options, 8(1).

Khan, A. (2018). Driving economic growth through vocational education: Empirical evidences from Pakistan. Journal of Policy Options, 1(4).

Khan, I., Khan, A., & Awan, H. (2020). Sustainable tourism and economic growth in Pakistan: Evidence from ARDL approach. Environmental Science and Pollution Research, 28, 45410–45419.

Khan, R., & Ullah, B. (2020). Examining the impact of firm sustainability practices on firm growth: Evidence from the United States. Journal of Policy Options, 3(1).

Kogid, M. (2022). Unveiling the dynamics of tourism demand: Insights from Malaysia's neighboring countries. Journal of Business and Economic Options, 5(1).

Kumar, P., & Wu, H. (2025). Evaluating the Dual Impact of Economic Drivers on Environmental Degradation in Developing Countries: A Study of Technology Innovation, Foreign Direct Investment, and Trade Openness. Journal of Energy and Environmental Policy Options, 8(1).

Labeeque, A., & Sanaullah, A. (2019). Towards inclusive economic growth: Synthesizing strategies for social inclusion in development. Journal of Policy Options, 2(2).

Liu, Z. (2010). Sustainable tourism development: A critique. Journal of Sustainable Tourism, 11(6), 459–475.

Lu, H., & Iqbal, N. (2025). Assessing the Economic and Strategic Significance of the China-Pakistan Economic Corridor. Journal of Policy Options, 8(1).

Mbodj, A., & Laye, S. (2025). Reducing Poverty Through Financial Growth: The Impact of Financial Inclusion and Development in Emerging Economies. Journal of Business and Economic Options, 8(1).

Mehmood, A., & Farooq, M. (2025). Sustainable tourism and economic equilibrium: Insights from vector correction models. Pakistan Journal of Applied Economic Research, 12(2), 101–118.

Mihalic, T. (2000). Environmental management of a tourist destination: A factor of tourism competitiveness. Tourism Management, 21(1), 65–78.

Modibbo, H., & Saidu, M. (2023). Investigating the causality between oil consumption and economic growth in Nigeria. Journal of Energy and Environmental Policy Options, 6(3).

Montgomery, D. C., Peck, E. A., & Vining, G. G. (2012). Introduction to linear regression analysis (5th ed.). Wiley.

Muhammad, A. A. (2023). Examining the relationship among unemployment, inflation, and economic growth. Journal of Business and Economic Options, 6(2).

Munir, F., Qamar, N., & Shahzad, T. (2024). Economic impact of tourism employment in developing economies: A sectoral analysis. Journal of Development and Labor Studies, 11(3), 140–159.

Nazir, T., Abbasi, F., & Sohail, W. (2024). Revisiting cointegration and adjustment speed in tourism-led growth models. International Journal of Sustainable Economic Research, 8(1), 31–47.

Noreen, A., & Alam, M. (2023). Environmental sustainability and tourism development: A delayed economic response model. Environmental Economics and Policy Studies in Asia, 10(4), 217–235.

Nur, H., & Kumar, A. (2023). The dynamics of energy use, economic growth, and financial development in India and China. Journal of Energy and Environmental Policy Options, 6(3).

Ortega, D., Zafar, S., & Bellucci, R. (2024). Tourism, employment, and economic transformation in Asia-Pacific: A dynamic panel approach. International Journal of Developmental Economics, 29(1), 54–78.

Osei, V., & Acheampong, J. (2021). Factor-based approaches for improved economic forecasting: Insights from Ghana's GDP growth. Journal of Business and Economic Options, 4(2).

Pavlovich, K. (2003). The evolution and transformation of a tourism destination network: The Waitomo Caves, New Zealand. Tourism Management, 24(2), 203–216.

Pervaiz, B., Manzoor, M. Q., Gull, R. H., & Goshi, S. (2024). Sustainable tourism development in Pakistan: Economic opportunities and environmental challenges. Pakistan Journal of Humanities and Social Sciences, 13(1), 123–133.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.

Qasim, M., & Su, W. (2022). Technology transfer and economic growth through foreign direct investment in transition economies. Journal of Policy Options, 5(2).

Radas, A. (2023). Inclusive business models as drivers of sustainable growth and social progress. Journal of Policy Options, 6(3).

Rasheed, S., Baig, R., & Mehboob, H. (2023). Tourism receipts and GDP growth: A panel analysis of short-run gains. Journal of Contemporary Economic Issues, 9(2), 92–108.

Rauf, A., Iqbal, F., & Shahzad, A. (2022). Political instability and tourism development in Pakistan: An ARDL approach. Journal of Economic Studies in Asia, 18(4), 301–319.

Rauf, B., Saeed, T., & Malik, N. (2023). Resilience and recovery in tourism economies: Evaluating adjustment dynamics using VECM. Asian Review of Development Studies, 7(4), 177–194.

Rehman, F., Abbas, A., & Shah, Z. (2025). Linking tourism, political governance, and sustainable growth: Evidence from panel quantile regressions. Journal of International Economic Studies, 17(2), 91–117.

Romer, P. M. (1994). The origins of endogenous growth. The Journal of Economic Perspectives, 8(1), 3–22.

Rossi, S. (2023). Exploring the relationship between economic growth, energy consumption, trade openness, and carbon dioxide emissions: A case study of Italy. Journal of Energy and Environmental Policy Options, 6(3).

Russo, L. (2022). The impact of slow productivity on healthcare costs in a no-growth: An empirical analysis. Journal of Policy Options, 5(4).

Sabir, S. (2023). Exploring sustainable tourism practices in Northern Pakistan: Insights from tour operators. Pakistan Journal of Tourism and Hospitality, 9(1), 88–104.

Sadiq, K., Ali, A., Usman, M., & Sulehri, F. A. (2025). Nexus among Ecological Footprint, Green Finance and Renewable Energy Consumption: A Global Perspective. Annual Methodological Archive Research Review, 3(3), 101-127.

Santos, J., Parveen, R., & Khalid, U. (2025). Stability and sustainability: The dual pillars of tourism-led growth. Contemporary Studies in Tourism and Policy, 8(1), 23–44.

Scheyvens, R. (1999). Ecotourism and the empowerment of local communities. Tourism Management, 20(2), 245–249.

Seetanah, B. (2011). Assessing the dynamic economic impact of tourism for island economies. Annals of Tourism Research, 38(1), 291–308.

Sequeira, T. N., & Nunes, P. M. (2008). Does tourism influence economic growth? A dynamic panel data approach. Applied Economics, 40(18), 2431–2441.

Shabbir, M., Tariq, F., & Zubair, A. (2023). Robustness in macroeconomic modeling: A tourism-focused diagnostic review. Applied Economic Methodologies Quarterly, 14(1), 44–61.

Shahid, A., & Hanif, I. (2024). Exploring long-run equilibrium between environmental policy, tourism, and economic growth: A case from Pakistan. Pakistan Economic Journal, 42(1), 67–83.

Sharpley, R. (2009). Tourism development and the environment: Beyond sustainability? Earthscan.

Sohail, S., & Arshad, N. (2024). Post-shock equilibrium and sustainable tourism: An empirical assessment of Pakistan. Journal of Economic Transition and Stability, 13(1), 59–76.

Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94.

Sönmez, S. F. (1998). Tourism, terrorism, and political instability. Annals of Tourism Research, 25(2), 416–456.

Sossounov, K., & Kolenikov, S. (2023). Addressing inequality amidst economic growth in Russia. Journal of Business and Economic Options, 6(2).

Tariq, M., Saleem, A., & Nazir, F. (2025). The lagged effect of environmental indicators on economic outcomes in tourism economies. Pakistan Journal of Ecological and Development Studies, 6(1), 73–91.

Umoh, O., & Effiong, E. (2024). Evaluating the contribution of Nigeria’s transport sector to economic growth from 1970 to 2023. Journal of Business and Economic Options, 7(3).

United Nations Development Programme. (2019). Tourism as a pathway to inclusive development in Pakistan. United Nations Development Programme.

United Nations Environment Programme. (2011). Towards a green economy: Pathways to sustainable development and poverty eradication. United Nations Environment Programme.

United Nations World Tourism Organization. (2018). Tourism and the Sustainable Development Goals: Journey to 2030. United Nations World Tourism Organization.

United Nations World Tourism Organization. (2020). Recommendations for the transition to a green travel and tourism economy. United Nations World Tourism Organization.

United Nations World Tourism Organization. (2022). World tourism barometer: Volume 20, Issue 6, November 2022. United Nations World Tourism Organization.

Wang, J., & Li, J. (2024). Green innovation and economic growth: Balancing development and environmental protection. Journal of Energy and Environmental Policy Options, 7(3).

Willy, R. (2018). The role of economic growth, foreign direct investment in determining environmental degradation: A panel data analysis. Journal of Energy and Environmental Policy Options, 1(4).

Wooldridge, J. M. (2016). Introductory econometrics: A modern approach (6th ed.). Cengage Learning.

World Travel and Tourism Council. (2020). Economic impact reports. World Travel and Tourism Council.

Xiong, L. (2024). Driving growth for SMEs in Laos' commercial sector: Challenges and opportunities. Journal of Business and Economic Options, 7(1).

Zahoor, H., Malik, L., & Chong, C. (2023). Environmental sustainability and tourism competitiveness: A cross-country analysis. Journal of Sustainable Tourism Management, 15(4), 299–321.

Zaman, K., Asad, M., & Rehman, U. (2024). Interlinkages between sustainability policies and tourism performance in Pakistan. Journal of Green Economy and Development Policy, 12(1), 36–54.

Zhang, W. B. (2020). Integrated analysis of economic growth and land prices: A two-sector model approach. Journal of Business and Economic Options, 3(3).

Zia Ullah, M., Ahmed, R., & Noor, F. (2021). Tour operators and sustainable tourism in Pakistan: Challenges and policy recommendations. Tourism Planning & Development, 18(3), 345–362.