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

Tang, Chor Foon and Aviral Kumar, Tiwari and Shahbaz, Muhammad (2016): 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Cointegration; Economic growth; Energy consumption, Tourism; Variance decomposition
• Subjects: C - Mathematical and Quantitative Methods > C0 - General

References

Alam, M. J., Begum, I. A., Buysse, J., & Rahman, S. (2011). Dynamic modeling of causal relationship between energy consumption, CO2 emissions and economic growth in India. Renewable and Sustainable Energy Reviews, 15, 3243-3251.

Al-mulali, U., Fereidouni, H. G., Lee, J. Y. M., & Mohammed, A. H. (2014). Estimating the tourism-led growth hypothesis: A case study of the Middle East countries. Anatolia: An International Journal of Tourism and Hospitality Research, 25, 290-298.

Apergis, N., & Payne, J. E. (2009). Energy consumption and economic growth in Central America: Evidence from a panel cointegration and error-correction model. Energy Economics, 31, 211-216.

Apergis, N., & Tang, C. F. (2013). Is the energy-led growth hypothesis valid? New evidence from a sample of 85 countries. Energy Economics, 38, 24-31.

Balaguer, J., & Cantavella-Jorda, M. (2002). Tourism as a long-run economic growth factor: the Spanish case. Applied Economics, 34, 877-884.

Chandran, V. G. R., & Tang, C.F. (2013). The dynamic links between CO2 emissions, economic growth and coal consumption in China and India. Applied Energy, 104, 310-318.

Cheng, B. S. (1999). Causality between energy consumption and economic growth in India: An application of cointegration and error-correction modeling. Indian Economic Review, 34, 39-49.

EIA (2013). International Energy Outlook 2013: With Projection to 2040. Washington, DC: U.S. Energy Information Administration, U.S. Department of Energy.

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

Fanchon, P., & Wendel, J. (1992). Estimating VAR models under non-stationary and cointegration: Alternative approaches for forecasting cattle prices. Applied Economics, 24, 107-217.

Ghosh, S. (2002). Electricity consumption and economic growth in India. Energy Policy, 30, 125-129.

Ghosh, S. (2009). Electricity supply, employment and real GDP in India: Evidence from cointegration and Granger-causality tests. Energy Policy, 37, 2926-2929.

Ghosh, S. (2011). Examining tourism-led growth hypothesis for India. International Journal of Indian Culture and Business Management, 4, 347-355.

Gregory, A. W. & Hansen, B. E. (1996). Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics, 70, 99-126.

Hatemi-J, A. (2015). On the tourism-led growth hypothesis in the UAE: A bootstrap approach with leveraged adjustments. Applied Economics Letters, DOI: 10.1080/13504851.2015.1078440

Hye, Q. M. A., & Khan, R. E. A. (2013). Tourism-led growth hypothesis: A case study of Pakistan. Asia Pacific Journal of Tourism Research, 18, 303-313.

Ibrahim, M. (2005). Sectoral effects of monetary policy: Evidence from Malaysia. Asian Economic Journal, 19, 83-102.

IEA (2013). Executive Summary: World Energy Outlook 2013. Paris, France: International Energy Agency.

Jalil, A., Mahmood, T., & Idrees, M. (2013). Tourism-growth nexus in Pakistan: Evidence from ARDL bounds tests. Economic Modelling, 35, 185-191.

Johansen, S. (1988). Statistical analysis of cointegrating vectors. Journal of Economic Dynamics and Control, 12, 231-254.

Kadir, N., & Karim, M. Z. A. (2012). Tourism and economic growth in Malaysia: Evidence from tourist arrivals from ASEAN-5 countries. Economic Research, 25, 1089-1100.

Katircioglu, S.T. (2009). Revisiting the tourism-led growth hypothesis for Turkey using bounds test and Johansen approach for cointegration. Tourism Management, 30, 17-20.

Katircioğlu, S. T. (2010). Testing the tourism-led growth hypothesis for Singapore – an empirical investigation from bounds test to cointegration and Granger causality tests. Tourism Economics, 16, 1095-1101.

Katircioğlu, S. T. (2011). Tourism and growth in Singapore: New extension from bounds test to level relationships and conditional Granger causality tests. Singapore Economic Review, 56, 441-453.

Katircioğlu, S. T. (2014a). International tourism, energy consumption, and environmental pollution: The case of Turkey. Renewable and Sustainable Energy Reviews, 36, 180-187.

Katircioğlu, S. T. (2014b). Testing the tourism-induced EKC hypothesis: The case of Singapore. Economic Modelling, 41, 383-391.

Katircioğlu, S. T., Feridun, M., & Kilinc, C. (2014). Estimating tourism-induced energy consumption and CO2 emissions: The case of Cyprus. Renewable and Sustainable Energy Reviews, 29, 634-640.

Kelly, J., & Williams, P. W. (2007). Modelling tourism destination energy consumption and greenhouse gas emissions: Whistler, British Columbia, Canada. Journal of Sustainable Tourism, 15, 67-90.

Khalil, S., Kakar, M. K., & Waliullah. (2007). Role of tourism in economic growth: Empirical evidence from Pakistan economy. Pakistan Development Review, 46, 985-995.

Kumar, R. R. (2014). Exploring the role of technology, tourism and financial development: An empirical study of Vietnam. Quality and Quantity, 48, 2881-2898.

Lai, T. M., To, W. M., Lo, W. C., Choy, Y. S., & Lam, K. H. (2011). The causal relationship between electricity consumption and economic growth in a gaming and tourism center: The case of Macao SAR, the People’s Republic of China. Energy, 36, 1134-1142.

Lean, H. H., & Smyth, R. (2010). CO2 emissions, electricity consumption and output in ASEAN. Applied Energy, 87, 1858-1864.

Lean, H. H., & Tang, C. F. (2010). Is the tourism-led growth hypothesis stable for Malaysia? A note. International Journal of Tourism Research, 12, 375-378.

Lee, C. G. (2012). Tourism, trade, and income: Evidence from Singapore. Anatolia: An International Journal of Tourism and Hospitality, 23, 348-358.

Lee, C. G., & Hung, W. T. (2010) Tourism, health and income in Singapore. International Journal of Tourism Research, 12, 355-359.

Lütkepohl, H. (2005). New Introduction to Multiple Time Series Analysis. Berlin Heidelberg: Springer-Verlag.

Mudarissov, B. A., & Lee, Y. (2014). The relationship between energy consumption and economic growth in Kazakhstan. Geosystem Engineering, 17, 63-68.

Narayan, P. K. (2005). The saving and investment nexus for China: Evidence from cointegration tests. Applied Economics, 37, 1979-1990.

Oh, C.O. (2005). Contribution of tourism development to economic growth in the Korean economy. Tourism Management, 26, 39-44.

Ozturk, I. (2010). A literature survey on energy-growth nexus. Energy Policy, 38, 340-349.

Ozturk, I., & Acaravci, A. (2009). On the causality between tourism growth and economic growth: Empirical evidence from Turkey. Transylvanian Review of Administrative Sciences, 25, 73-81.

Paul, B. P., & Uddin, G.S. (2011). Energy and output dynamics in Bangladesh. Energy Economics, 33, 480-487.

Paul, S., & Bhattacharya, R.N. (2004). Causality between energy consumption and economic growth in India: A note on conflicting results. Energy Economics, 26, 977-983.

Pesaran, M. H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58, 17-29.

Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Strom (Ed.), Econometrics and Economic Theory in the 20th Century. The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press.

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

Ramaswamy, P., & Slok, T. (1998). The real effects of monetary policy in the European Union: What are the differences? IMF Staff Papers, 45, 374-396.

Shahbaz, M., & Feridun, M. (2012). Electricity consumption and economic growth empirical evidence from Pakistan. Quality and Quantity, 46, 1583-1599.

Shahbaz, M., Islam, F., & Aamir, N. (2012) Is devaluation contractionary? Empirical evidence for Pakistan. Economic Change and Restructuring, 45, 299-316.

Shahbaz, M., & Lean, H. H. (2012). The dynamics of electricity consumption and economic growth: A revisit study of their causality Pakistan. Energy, 39, 146-153.

Shan, J. (2005) Does financial development ‘lead’ economic growth? A vector auto-regression appraisal. Applied Economics, 37(12), 1353-1367.

Soares, J. A., Kim, Y. K., & Heo, E. (2014). Analysis of causality between energy consumption and economic growth in Indonesia. Geosystem Engineering, 17, 58-62.

Srinivasan, P., & Ravindra, I. S. (2015). Causality among energy consumption, CO2 emission, economic growth and trade: A case of India. Foreign Trade Review, 50, 168-189.

Srivastava, L., & Shukla, M. (2004). The present status and future prospect of energy in India. In J. S. Al-Suwaidi (Ed.), Asian Energy Markets: Dynamics and Trends, Abu Dhabi: The Emirates Center for Strategic Studies and Research

Tang, C. F. (2011). Is the tourism-led growth hypothesis valid for Malaysia? A view from disaggregated tourism markets. International Journal of Tourism Research, 13, 97-101.

Tang, C. F. (2013) Temporal Granger causality and the dynamics relationship between real tourism receipts, real income and real exchange rates in Malaysia. International Journal of Tourism Research, 15, 272-284.

Tang, C. F., & Abosedra, S. (2014). The impact of tourism, energy consumption and political instability on economic growth in the MENA countries. Energy Policy, 68, 458-464.

Tang, C. F., & Abosedra, S. (2016). Tourism and growth in Lebanon: New evidence from bootstrap simulation and rolling causality approaches. Empirical Economics, 50, 679-697.

Tang, C. F., & Shahbaz, M. (2013). Sectoral analysis of the causal relationship between electricity consumption and real output in Pakistan. Energy Policy, 60, 885-891.

Tang, C. F., Tan, B. W., & Ozturk, I. (2016). Energy consumption and economic growth in Vietnam. Renewable and Sustainable Energy Reviews, 54, 1506-1514.

Tang, C. F., & Tan, E. C. (2013a). Exploring the nexus of electricity consumption, economic growth, energy prices and technology innovations in Malaysia. Applied Energy, 104, 297-305.

Tang, C. F., & Tan, E. C. (2013b) How stable is the tourism-led growth hypothesis in Malaysia? Evidence from disaggregated tourism markets. Tourism Management, 37, 52-57.

Tang, C. F., & Tan, E. C. (2015) Does tourism effectively stimulate Malaysia’s economic growth? Tourism Management, 46, 158-163.

Tiwari, A. K., Ozturk, I., & Aruna, M. (2013). Tourism, energy consumption and climate change in OECD countries. International Journal of Energy Economics and Policy, 3, 247-261.

Turner, P. (2006). Response surfaces for an F-test for cointegration. Applied Economics Letters, 13, 479-482. UNWTO (2015). UNWTO Tourism Highlight, 2015 Edition. Madrid, Spain: World Tourism Organisation

Vidyarthi, H. (2013). Energy consumption, carbon emissions and economic growth in India. World Journal of Science, Technology and Sustainable Development, 10, 278-287.

Wolde-Rufael, Y. (2009). The defence spending-external debt nexus in Ethiopia. Defence and Peace Economics, 20, 423-436.

Wolde-Rufael, Y. (2010). Bound test approach to cointegration and causality between nuclear energy consumption and economic growth in India. Energy Policy, 38, 52-58.

Yorucu, V., & Mehmet, O. (2015). Modeling energy consumption for growth in an open economy: ARDL and causality analysis for Turkey. International Journal of Green Energy, 12, 1197-1205.

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 and Economic Statistics, 10, 251-270.