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The impact of tourism industry on the economic growth of Pakistan

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DOI: 10.47264/idea.jhsms/4.2.2

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 Journal of Humanities, Social and Management Sciences (JHSMS)
eISSN: 2788-4791 (online)
https://ideapublishers.org/index.php/jhsms
Vol. 4, No. 2 (July-December), 2023, pp. 18-40
https://doi.org/10.47264/idea.jhsms/4.2.2 Research Article

The impact of tourism industry on the economic growth of Pakistan

Amin Ullah1 | Nadeem Jan2 | Zia Ur Rehman3 | Fazal Amin4

1. Department of Economics, Qurtuba University of Science and Information Technology, Peshawar,

Pakistan.
2. School of Economics, Zhongnan University of Economics and Law, Wuhan, China.
3. Department of Economics, Woman University Swabi, Swabi, Pakistan.
4. School of Economics and Trade, Hunan University, Changsha, China.

*Corresponding Author Email: [email protected]

Abstract:
Article History
The fundamental plan of the study is to explore the impact of tourism receipt
Received: on Pakistan’s gross domestic product growth and use the data set from 1995
10-Oct-2023 to 2019. This study employed ARDL techniques for estimation. The study
reveals that the economic growth (later on GGDP) has been favourably and
Revised:
significantly affected by the labour force, foreign direct investment,
06-Nov-2023
exchange rate, and gross national expenditure. However, gross capital
Re-revised: formation and human capital showed an encouraging outcome on the
22-Dec-2023 economy in the long period but showed unfavourable and noteworthy
effects in the short period. The tourism receipt and inflation rate have a
Accepted: favourable and noteworthy influence on the GGDP in the long run, but they
23-Dec-2023 have an inconsequential impact on the GGDP in the near run. This study
concluded that tourism receipt has significantly influenced Pakistan’s
Published: GGDP. This study recommended that the government should focus on the
31-Dec-2023 promotion of tourism in Pakistan to earn more revenue and enhance
economic growth. The government also devised feasible and flexible
policies and has provided facilities to attract foreign tourists for the
country’s economic development.

Keywords: Tourism expenditure, Gross domestic product growth, Gross national expenditure,
Exchange rate, Inflation, Human capital, Foreign direct investment, Labour force.

How to Cite:
Ullah, A., Jan, N., Rehman, Z. U., & Amin, F. (2023). The impact of tourism industry on the economic
growth of Pakistan. Journal of Humanities, Social and Management Sciences (JHSMS), 4(2), 18-40.
https://doi.org/10.47264/idea.jhsms/4.2.2

Copyright: © 2023 The Author(s), published by IDEA PUBLISHERS (IDEA Publishers Group).

License: This is an Open Access manuscript published under the Creative Commons Attribution 4.0
(CC BY 4.0) International License (http://creativecommons.org/licenses/by/4.0/).
__________________________________________________________________________________________

18
 A. Ullah, N. Jan, Z. U. Rehman, & F. Amin
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1. Introduction

Tourism is an essential economic activity and plays an important role in the GGDP of a country.
Mainly the four goods and services in a location are demanded by the tourists that are food,
accommodation, entertainment, and transport facilities. Tourism has a favorable outcome on
the growth of an economy as it rises the level of employment in the country (Eugenio et al.,
2004). Moving to and resting of an individuals in places external their usual environment for
less than one continual year for vacations, business, or for some other objectives is regarded as
tourism (Frechtling, 2010). Tourism is defined as the exercise of traveling aboard for short
period by millions of people for relaxation, recreation, pleasure, sightseeing or learning to meet
their socio-cultural and psychological needs. Even though the tourism is a phenomenon that
includes cultural and social dimensions, it is actually is social activity which justifies attention
due to its economic dimension on the whole (Kar et al., 2004).

The key objective of the government to embolden tourism all over the world is that it has an
encouraging effect on the economic development. Tourism creates employment opportunities
and increases the income which leads to a positive tourism balance of payment and it stimulates
the tourism supply sectors thus increasing the level of GGDP in a country (Webster & Ivanov,
2009). Thus, the tourism considerably affects both the economic development and the
employment level of an economy. Tourism basically is relevant to those regions where there is
high rate of unemployment and low level of per capita GDP. According to the general opinion
tourism not only rises foreign exchange but also rises the level of employment (Samimi et al.,
2011). According to Oluwatuyi and Akinlo (2018) the role of tourism industry in the economic
development (later on GDPpc) of a country could be observed from its exports. New earnings
are required for the sustainability of every nation which will help in fight against inflation and
also it will be effective to satisfy the increased demand (Kalaiya & Kumar, 2015). One of the
important and successful industries is tourism. It is a source of employment generation,
Reduction of poverty and human development in India, also tourism comprises of one third of
foreign earnings of India. As compared to other sectors it employed maximum number of
people (Padhi & Mishra, 2013).

The rapid growth of tourism increases the income of household, government revenue, improves
balance of payment and growth of tourism industry (Kreishan, 2010). Activity of Tourism is
benefitted for the tax revenue, employment (it leads to labor intensive) and some other sources
of income (Seetanah, 2011). The tourism industry depends upon those people who are willing
to leave their hometowns and became a customer. For achieving the success, the location must
attract the customers from different places to visit its community (Correia & Kozak, 2010).
When the tourists visit the rural areas it will allow the inflow of foreign currency in these areas
causing business expansion and increase in the household income (AL-Najjar & Ishwara,
2018). Tourism also has important way to earn foreign capital and these capital goods can be
further used for manufacturing more commodities which ultimately leads to the growth of an
economy (McKinnon, 1964). Developing tourism is based on the security in the world. The lot
of tourist resort has been closed due to terrorist attacks (AL-Najjar & Ishwara, 2018).

By the growth of tourism, the wealth of society increases, and it also helps in the provision of
commodities. In the past, tourism was considered as a habit of rich but now it is believed that
it a consumption habit of many people both in developing and advanced nations. In the 21st
century tourism is considered an important sector because of its share in the economy
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Journal of Humanities, Social and Management Sciences (JHSMS) 19

The impact of tourism industry on the economic growth of Pakistan
__________________________________________________________________________________________

(Gökovali & Bahar, 2006). Tourism is viewed as an important instrument to boost GDP growth
of the developing countries and social and cultural development of under developed countries,
which faces the situation of unemployment, lack of capital inflow (Karki, 2012). It serves as a
key source for the capital inflow of these countries and also provides a ground for the
development of basic infrastructure (Aratuo et al., 2019). In the developing countries 83
percent of export is tourism and it is considered to be important source of foreign exchange
after petroleum (Richardson, 2010).

Currently, tourism is reflected as a best economic sector which can tackle the problems of
unemployment by creating the job opportunities and by raising the life standard of the poor
people (Rout et al., 2016). The fast advancement of tourism sector since the early 1980s has
made the scholars to take interest in finding the link between tourism and GGDP of several
economies (Akkemik, 2012). Pakistan is much popular for tourism. Pakistan have very
beautiful places and its sector of tourism is developing day by day (Chen & Chiou-Wei, 2009).
In the developing world Pakistan has much attraction. The historical inheritance and culture is
very perceptible in this prehistoric region. Pakistan have too many places like Kalam, Malam
Jabba, Balakot, Swat, Murri, Shangla, Gilgit, Ayubia, Paras, Chitral, Shinu, Sharan, Lulusar,
Naran, Dudupatsar, Kaghan Valleys, and Shogran, Malika Parbat, Lake Saif ul Muluk, Supat
valley and too many others places and mountain ranges attract and receives too much tourist
every year (Arshad et al., 2018). There are a lot of places in Pakistan’s Northern areas which
are encompassed of grandeur and majesty. Such areas have relics of diverse lands special to its
tradition. These areas are also blessed as a highest destination with a shocking collection of
many valleys, lakes, mountains, and rivers (Adnan & Ali, 2013). The Pamir, Himalaya,
Hindukush, and Karakoram Mountain ranges produce impressive areas. They bring
mountaineers, hikers, climbers, and trekkers. Only a few areas in the world can offer such a
huge diversity of socio-economic structures, history, and a good quality combination of
outstanding natural attraction as presented by Hindukush and Himalayan areas of Pakistan
(Rasul & Manandhar, 2009).The direct contribution of tourism in the Pakistan’s GDP 2.9
percent in 2017 and increase in by 5.9 percent in 2018, and is expected to be maintain increase
by 5.8 percent in up to 2028 per year and reach to 3 percent of the total GDP in 2028 (Kumail
et al., 2020).

Numerous studies have proved the direct association between tourism and the growth of an
economy. The scholars examine the robust link between exports and GDP growth of an
economy. Furthermore, tourism additions are linked to the GDPpc. Though, export leaning
GDPpc instigated tourism receipts to drop (Manzoor et al., 2019). The policies of constant
encouragement of tourism may not be effective as supposed by decision makers, if no direct
association was establish between economic growth and tourism development, as it normally
occurs when tourism receipts has an encouraging effect on the economic growth (Manwa,
2012). There are few analysis, which are conducted to study the link between the tourism
industry and GDP growth of South Asian areas, specifically in Pakistan (Manzoor et al., 2019).
The present literature's findings on the tourism-growth causal relationship are varied, therefore
broad conclusions regarding their interaction cannot be derived (Enilov & Wang, 2021). The
process by which tourism contributes to economic growth is poorly understood. These
limitations may restrict the contributions of tourism-led economic growth research, and their
results may mislead policymakers attempting to build destination development plans. They
give fresh insights and research ideas for tourism-led economic growth research by critically
evaluating prior tourism-led economic growth research from both theoretical and empirical
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JHSMS, 2023, 4(2), 2, 18-40 20

 A. Ullah, N. Jan, Z. U. Rehman, & F. Amin
__________________________________________________________________________________________

perspectives (Song & Wu, 2021). Similarly, The empirical validity of the tourism-led-growth
theory warrants more investigation, and a more in-depth examination of this issue is required
to make policy suggestions, particularly during crisis situations (Pérez-Rodríguez et al., 2021).

Pakistan is renowned as a unique area with significant neighbouring landmass and various
physical features. It has various natural resources such as coastal areas mountains, rivers and
various climatic, which makes it more striking. It also has plains, forests, marshland and
deserts, despite such an enormous potential for tourism. Pakistan received a thousand of tourists
each year in the past, but there are many obstacles in the way of tourism activities. First, the
recent wave of terrorism and the COVID-19 harmfully disturbed the tourist activities. The
foreign tourist become eager about the security and safety (Habibi et al., 2018). Secondly, the
past government ignored the tourism industry. Thirdly, the weak political system and law and
order situation discourage the tourist to visit Pakistan. The tourism industry requires a legal
system, political stability and strong financial system (Ingram et al., 2013). This study is
different with other due to many aspects also, like; initially, they utilized ARDL model to give
the robust and authentic results. Secondly, this study used different combination of variables,
which is never used in the past studies. Third, no updated study is available about Pakistan.
Fourthly, there are many studies are available in these issues, but they give different results and
magnitude of tourism receipt. Therefore, the scholars are still not agreed on the magnitude
value and its impact on GDP growth. Pakistan’s economic base from the tourism is still weak
and the tourism industry can’t significantly contribute to GDP growth and create employment
opportunities. Therefore, this research was conducted to study the effect the tourism industry
on the Pakistan’s GDP growth.

This research would be accommodating for the policymaker in order to enhance tourism by
promoting and organizing it. The enhancement of basic infrastructure and education of local
people plays a vigorous role in progress of tourism industry and earn more revenue to influence
economic growth. The promotion of the tourism industry will create more jobs, develop the
areas and improve the level of comfort of the people live in these areas. Furthermore, safety is
the first priority of every tourist. The tourists look for places where they can spend a pleasant
stay. So, these mentioned factors should be improved to make tourism as a profitable industry.

2. Literature Review

Balaguer and Cantavella-Jordá (2002) initiate that tourism has favourable influence on the
growth of economy of Greece using Granger causality (later GC) test, ECM from the year 1960
to 2000. Eugenio et al. (2004), concluded that tourism has an encouraging outcome on GDP
growth of 21 (twenty-one) Latin American nations from 1985-1998 by applying GLS for
estimation. Dritsakis (2004), concluded that economic growth has been favourably affected by
tourism of Greece from 1960-2000 by using causality tests. Oh (2005) failed to find out any
long-term link among tourism and GDP growth by using the Korea’s data from 1975 to 2001
by using Bivariate Vector Autoregressive model. Kim et al. (2006), found a mutual link
between tourism progress and GDP growth of Taiwan from 1956-2002 by using unit root and
co-integration tests. Gökovali and Bahar (2006), concluded that the factors related to tourism
boost GDP growth of Mediterranean countries from the year 1987-2002 by using a panel
estimation technique. Samina and Kakar (2007), found a strong link between tourism and GDP
growth of Pakistan from the year 1960-2005. The researchers applied Engle-Granger co-
integration technique and ECM. Parrilla et al. (2007) showed an encouraging association
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Journal of Humanities, Social and Management Sciences (JHSMS) 21

The impact of tourism industry on the economic growth of Pakistan
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between tourism and GDP growth of Spain and tourism from the year 1965 to 2002 by applying
accounting model. Sequeira and Nunes (2008), exhibited that the impression of tourism is
encouraging on the GDP growth from 1980 to 2002 and they applied OLS technique. Fayissa
et al. (2008), proved that the tourism has a favourable influence on growth of an economy of
forty two African economies from the year 1995 to 2004 and applied general method of
moment (GMM) estimator. Abbas and Foreman-Peck (2008), concluded that the economy of
Pakistan has been favourably affected by human capital Pakistan from the year 1961-2005 by
using Johansen co integration method. Carrera et al. (2008) supported tourism-led-growth
(TLG) hypothesis in Mexico from 1980-2007 by using Johanson co-integration test.

Lee and Chang (2008), concluded that the impression of tourism on GGDP is greater in non-
OECD countries as compared to OECD economies from 1990-2002 by using Panel unit root
and panel Co-integration method. Brida and Risso (2009) concluded that GDP growth has been
favourably affected by GDP growth of Chile from the year 1988 to 2008 by applying granger
causality and Johansen co-integration techniques for estimation. Zortuk (2009), found a long-
term link among GDP growth and tourism of Turkey by using data from 1990 Q1 and 2008
Q3. Katircioglu (2009) concluded that the improvement in tourism results in the economic
growth for Turkey from the year 1960 to 2006 by using bounds test and Johanson Co-
integration. Malik et al. (2010) indicated that the tourism has a favourable impression on GDP
of Pakistan from 1969 to 2007 by applying Johnson co-integration technique and ECM. Cortes-
Jimenez and Pulina (2010) found exports led GDP growth in the long- term of developing
countries from 1950s to 1960s by using granger causality and Johansen co-integration
techniques. Narayan et al. (2010), demonstrates that the tourism has a favourable impact on
GDP of 4 Island countries that are Fiji, Papua New Guinea, Solomon and Tonga Island by
using panel co-integration test of Padroni’s from the year 1988-2004. Kreishan (2010), used
the data of Jordan from the year 1970-2009 by using ADF test, Johanon and Juselius and
Granger causality test and concluded that the GDP growth has been positively exaggerated by
tourism. Tiwari and Mutascu (2011), used the ASIAN economies namely China, Pakistan,
India and Russia data from the year 1995 to 2008. The researcher applied OLS technique for
estimation. They concluded that tourism has an encouraging effect on the GGDP. Srinivasan
et al. (2012) using the Sri Lanka from the data from 1969-2009 by applying ARDL technique.
They concluded that economic growth has been favourably influenced by tourism. Jalil et al.
(2013), using Pakistan data from 1979 to 2011 by applying ARDL. They concluded that
tourism has an encouraging effect on GDP growth. Lean et al. (2014) applied Co-integration
technique and used Malaysia and Singapore data from 1980 to 2009 and found positive
association between tourism and GGDP both in Malaysia and Singapore.

Aleemi (2015), studied the influence of tourism receipts on the economy of Pakistan from the
year 1981 to 2013 by using OLS estimation. The result showed that tourism receipt has a
favourable influence on the GGDP. Ertugrul and Mangir (2015), studied the link among
tourism and GGDP of Turkey by using Bound test, Granger causality test from 1998 to 2011
and concluded that the impact of tourism on the EG is favourable. Ahad (2016) studied the link
between tourism and GGDP of Pakistan from 1988 to 2014. He applied NG-Parron unit root
test, and VECM and depicted that tourism has an encouraging effect on GGDP and in reverse
economic growth also encourages tourism. Khan and Rasheed (2016), applying Error
Correction Model (ECM) from 1972 to 2013 and concluded that until terrorism is not
eliminated, tourism will not be improved. Ohlan (2017), analysed the consequence of tourism
on GGDP of India for the period of 1960 to 2014 and showed that tourism stimulates the GGDP
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 A. Ullah, N. Jan, Z. U. Rehman, & F. Amin
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of India. Paramati et al. (2017) used the data of twenty-six (26) developed- and Eghteen (18)
developing-economies and using the data from 1995-2012 and found an optimistic association
among the considered variables. Matthew et al. (2018) used the data of Nigeria from 1980 to
2016 by using FMOLS, Johansen co-integration and found a positive association among the
economic growth, tourism and its earning. Stauvermann et al. (2018), studied the link among
tourism and GGDP of Sri Lanka from 1980-2014 by applying ARDL and concluded that the
GGDP has been favourably and significantly affected by receipt of tourism. Puah et al. (2018)
concluded that tourism and capital accumulation are the key factors which leads to economic
development by using the data of Malaysia from the year 1995 to 2016 by applying ARDL
technique. Ghalia and Fidrmuc (2018) analysed the influence of tourism on GGDP of 133
countries from the year 1995-2007 by using standard Solow model of growth and confirm that
tourism has a no effect on the GGDP.

Wu and Wu (2019), explored the link between tourism and GGDP of China’s central provinces
(Shanxi, Henan, Jilin, Heilong, Jiang, Anhui, Giangxi, Hubie, and Hunan) from the year 1995
to 2014 by using Granger causality method, the Lagrange multiplier (LM). They support the
TLG-hypothesis in Hunan province. Liu and Wu (2019) analysed the mechanism for the
transfer of tourism and GGDP in Spain from the year 1995 to 2016 by using a Bayesian DSGE
approach. They concluded that the GGDP has been completely affected by tourism. Aratuo et
al. (2019), studied the relationship between tourism and GGDP of USA for the period of 1996-
2016 by using Bound test. The result showed that GGDP has been favourably affected by
tourism. Zhang and Cheng (2019) studied the impact of tourism on GGDP of thirty-six
Wenchaun earthquake-influenced countries from 2008-2016 by using a panel-threshold
regression method. The result supported the tourism-led growth theory.

Uzuner et al. (2020) studied the means of causal link among fear related to migration, from the
year 1985-I-2017-IV. They applied LA-VAR for the causality among these countries. The
result showed that fear related to migration has a link with tourism arrivals and real income.
Akadiri et al. (2020) explored the link among geo-political risk, tourism and GDP growth of
Turkey from 1985Q1 to 2017Q4 by using Granger causality approach. The result revealed that
a uni-directional causality running from geo-political risk to GGDP and tourism. Naseem
(2021) used the data Saudi Arabia from 2003-2019 and employed the Johansen co-integration
test for estimation and found that tourism promotes Saudi Arabia’s GGDP. Morover, Enilov
and Wang (2021) examine 23 emerging and developed nations between 1981-1 and 2017-12.
For estimating, they employed the Granger causality technique. Their empirical findings reveal
that causation varies across time. They developed a new global connection index (GCI),
demonstrating that international tourist arrivals (ITA) continue to be a leading indication of
future economic development. Similarly, the time following the GFC is marked by one of the
greatest values of tourism-led economic development in developed nations, according to the
GCI; however, this influence is transitory and fades soon. Overall, they discovered that the
tourist industry in poor nations continues to be a major contributor to future economic growth,
which is not the case in wealthy countries.

Pérez-Rodríguez et al. (2021) investigate whether tourism helps economic growth. Their
research is based on quarterly GDP and visitor arrival data for 14 EU from 1995-2019. Their
findings imply that the argument for a favorable link between tourism and GGDP is very poor,
from 2007 to 2010. Using panel fractional cointegration methods, they discovered support in
favor of TLGH across the whole sample, primarily for nations in North Europe. In the pre-
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Journal of Humanities, Social and Management Sciences (JHSMS) 23

The impact of tourism industry on the economic growth of Pakistan
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crisis time, however, they discovered evidence in favor of the TLGH for the important tourist
locations of Spain and France. Similarly, De Siano and Canale (2022) assess tourism's
contribution to GDPpc while accounting for congestion caused by an excess of presences.
Spatial analysis finding interconnectedness across Italian data from 2005 to 2018 demonstrates,
as expected, that tourism has a confident impact on GGDP. Wijesekara et al. (2022) examines
105 countries data from 2003-2020. They concluded that in most areas, tourism contributes
meaningfully to GGDP. Razzaq et al. (2023) examined data from the top ten GDP nations
between 1995-2018. Their first findings contradict the assumption of data normality,
prompting us to employ a unique approach of moment’s quantile regression. Their findings
indicate that tourist development promotes GGDP. Explicitly, the positive GGDP benefits are
substantially bigger for the comparably more developed nations, whereas the negative
environmental consequences are significantly higher for the comparatively less-polluted
nations; consequently, the TLG theory is supported. Similarly, Kumar and Stauvermann
(2023), concluded that tourism has positive consequences on GGDP in all five economies.

3. Methodology, theoretical framework and model

The study utilized time series data from 1995-2019. The economic growth is endogenous
variable in the study while capital, labour, human capital and tourism are the exogenous
variables. The source of collecting the data was World Development Indicators (2020).

3.1. Theoretical framework

According to the hypothesis, since tourism-related expenditure creates foreign currency profits,
a country's visitor count is a key factor in determining its economic growth. These earnings are
used to import capital goods, which are used to produce goods and services and boost the host
nation's economy. The demand from tourists for housing, food, transportation, and
entertainment increases the production of goods and services, generates income, and expands
job opportunities, all of which enhance the economy (Balaguer & Cantavella-Jordá, 2002). The
economy as a whole is dynamically impacted by tourism due to externalities and spillovers to
other sectors. This implies that growth in the tourism industry stimulates growth in other
industries that provide, or purchase goods connected to tourism. In addition, tourism may
promote the development of new competitive industries and infrastructure, offer economies of
scale, and aid in the transfer of technical know-how (Brida et al., 2008). According to Mitchell
and Ashley (2006) that tourism development also contributes considerably to poverty
reduction. According to the authors, this may be accomplished by promoting unskilled
occupations and providing positions, which may subsequently assist integrate individuals
work. The tourism sector also helps to GGDP by enhancing efficiency via struggle between
domestic enterprises and destinations for foreign tourists.

Other criteria that relate the tourist sector to economic growth are proposed by the UNWTO.
For instance, local employment may be generated directly, indirectly, or through tourism.
People who work in tourism-related establishments like hotels, restaurants, gift shops, and so
forth create direct employment, while businesses that supply services and products to the travel
industry, such fishing and agriculture, create indirect employment (Gwenhure & Odhiambo,
2017). Although the concept can be traced back to the initial work of tourist economists
(Gerakis, 1965; Gray, 1966), the UNWTO has lately emphasized the multiplier-effects that
tourism has on the economy as a result of the presence of a foreign-income source. Another
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JHSMS, 2023, 4(2), 2, 18-40 24

 A. Ullah, N. Jan, Z. U. Rehman, & F. Amin
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point raised by the NUWTO (2011) is that tourism boosts government revenue through hotel
income taxes and other types of tourist levies. These consist of departure fees from airports,
import taxes on goods used by the tourism sector, income taxes on travel agencies and
professionals, and capital gains taxes on the assets owned by travel agencies (United Nations
World Tourism Organization, 2014). When it comes to macroeconomic concerns, destination
governments and industry practitioners have recognized the importance of tourism-led
economic development (TLG) when making decisions about investment and policy. According
to the TLG theory, a destination's economy grows as a result of increased tourism (Song & Wu,
2021).

3.2. Model specification

The present study applied the following modified model. The same were used by Fayissa et al.
(2008), Khan et al. (2022), Eugenio et al. (2004), Rehman et al. (2018), and Manzoor et al.
(2019).

𝐺𝐺𝐷𝑃𝑡 = 𝛽0 + 𝛽1 𝐿𝐹𝑡 + 𝛽2 𝐺𝐶𝐹𝑡 + 𝛽3 𝐻𝐾𝑡 + 𝛽4 𝑇𝑜𝑢𝑟𝑅𝑒𝑐𝑝𝑡 + 𝛽5 𝐺𝑁𝐸𝑡 + 𝛽6 𝐶𝑃𝐼𝑡 + 𝛽7 𝐹𝐷𝐼𝑡 +

𝛽8 𝑂𝐸𝑅𝑡 + 𝜇𝑡 (1)

Where,

β's are parameters and µt is random error term.

Table 1: Description of the variables

S. No. Variable Symbols
1 GDP growth (annual %) GGDPt
2 Labor force participation rate, total (% of total population ages 15+) LFt
3 Gross capital formation (% of GDP) GCFt
4 School enrollment, secondary (% gross) SSEt
5 Tourism, receipts (% of total exports) TourRecpt
6 Gross national expenditure (% of GDP) GNEt
7 Inflation, CPI (annual %) Inft
8 FDI, net inflows (% of GDP) FDIt
9 Official exchange rate OERt

3.3. Econometrics techniques: Autoregressive Distributed Lag (ARDL) Model

There exist too many methods to investigate the long and near-run coefficient of the variables,
Such as OLS techniques but the assumption of the OLS are too harsh and too complicated and
Johansen Co-integration test established by Johansen and Juselius (1990) and Engle and
Granger (EG) test for co-integration formed by Engle and Granger (1987). The above-
mentioned methods are better for the large sample and identical order data. The present study
applied the ARDL method built by Pesaran and Shin (1999) to estimate because the ARDL
methods are more appropriate for mixed or same order data. The ARDL model automatically
solves the problem endogeneity and homogeneity. Therefore, the results of ARDL model are
more reliable and authentic then other techniques.

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Journal of Humanities, Social and Management Sciences (JHSMS) 25

The impact of tourism industry on the economic growth of Pakistan
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Model of the study in the ARDL Techniques Form

= 𝛽0 + ∑𝑛𝑖=1 𝛽1𝑖 𝐺𝐺𝐷𝑃𝑡−𝑖 + ∑𝑛𝑖=0 𝛽2𝑖 𝐺𝐶𝐹𝑡−𝑖 + ∑𝑛𝑖=0 𝛽3𝑖 𝐿𝐹𝑡−𝑖 + ∑𝑛𝑖=0 𝛽4𝑖 𝐻𝐾𝑡−𝑖 +
𝐺𝐺𝐷𝑃𝑡
∑𝑛𝑖=0 𝛽5𝑖 𝑇𝑜𝑢𝑟𝑅𝑒𝑐𝑝𝑡−𝑖 + ∑𝑛𝑖=0 𝛽6𝑖 𝐺𝑁𝐸𝑡−𝑖 + ∑𝑛𝑖=0 𝛽7𝑖 𝐶𝑃𝐼𝑡−𝑖 + ∑𝑛𝑖=0 𝛽8𝑖 𝐹𝐷𝐼𝑡−𝑖 +
∑𝑛𝑖=0 𝛽9𝑖 𝑂𝐸𝑅𝑡−𝑖 + 𝜇𝑡 ………………………………………………………………………. (2)

Model of the study in the in ARDL Bound Techniques Form

∆𝐺𝐺𝐷𝑃𝑡 = 𝛽0 + ∑𝑛𝑖=1 𝛽1𝑖 ∆𝐺𝐺𝐷𝑃𝑡−𝑖 + ∑𝑛𝑖=0 𝛽2𝑖 ∆𝐺𝐶𝐹𝑡−𝑖 + ∑𝑛𝑖=0 𝛽3𝑖 ∆𝐿𝐹𝑡−𝑖 +
∑𝑛𝑖=0 𝛽4𝑖 ∆𝐻𝐾𝑡−𝑖 + ∑𝑛𝑖=0 𝛽5𝑖 ∆𝑇𝑜𝑢𝑟𝑅𝑒𝑐𝑝𝑡−𝑖 + ∑𝑛𝑖=0 𝛽6𝑖 ∆𝐺𝑁𝐸𝑡−𝑖 + ∑𝑛𝑖=0 𝛽7𝑖 ∆𝐶𝑃𝐼𝑡−𝑖 +
∑𝑛𝑖=0 𝛽8𝑖 ∆𝐹𝐷𝐼𝑡−𝑖 + ∑𝑛𝑖=0 𝛽9𝑖 ∆𝑂𝐸𝑅𝑡−𝑖 + 𝛾1 𝐺𝐶𝐹𝑡 + 𝛾2 𝐿𝐹𝑡 + 𝛾3 𝐻𝐾𝑡 + 𝛾4 𝑇𝑜𝑢𝑟𝑅𝑒𝑐𝑝𝑡 +
𝛾5 𝐺𝑁𝐸𝑡 + 𝛾6 𝐶𝑃𝐼𝑡 + 𝛾7 𝐹𝐷𝐼𝑡 + 𝛾8 𝑂𝐸𝑅𝑡 + 𝜔𝑡 ……………………..…………………….. (3)

This study used dual test to analyse the order of integration of the each series, the ADF Test
established by Dickey and Fuller (1979) and the Philips Perron test established by Perron
(1990).

4. Results and discussion

4.1. Descriptive statistics

The table 2 indicates that the lowest fluctuation exists in the series FDI and the highest
fluctuation exists in the series of exchange rate. All the variables are normally distributed
except FDI.

Table No. 2: Descriptive Statistics Synopsis

EGt FDIt HKt GNEt GCFt LFt OERt TOURRECPt CPIt
Mean 4.17 1.21 25.68 106.45 18.20 51.46 70.42 5.39 8.09
Median 4.40 0.89 24.90 106.01 17.76 51.00 60.74 5.70 7.60
Std. Dev. 1.72 0.88 4.90 3.69 2.05 2.25 26.17 1.54 4.41
Skewness 0.09 1.71 0.71 0.32 0.48 0.24 0.25 -0.37 0.79
Kurtosis 2.48 4.87 3.02 2.35 2.87 2.62 1.93 2.34 3.34
Jarque-Bera 0.31 15.80 2.08 0.86 0.96 0.39 1.45 1.03 2.75
p-value 0.86 0.00 0.35 0.65 0.62 0.82 0.48 0.60 0.25

4.2. Correlation matrix

Table 3 shows that the dependent variable i.e. economic growth is correlated to labour force,
foreign direct investment, Human capital, Government expenditure, capital formation, labour
force, Official exchange rate, tourism receipt and inflation. The result indicates that foreign
direct investment, human capital, government expenditure, labour force, official exchange rate,
tourism receipt is positively correlated to economic growth while inflation is unfavourably
correlated to economic growth.

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 A. Ullah, N. Jan, Z. U. Rehman, & F. Amin
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Table 3: Correlation matrix results

EGt FDIt HKt GNEt GCFt LFt OERt TOURRECPt CPIt
EGt 1 0.13 0.63 0.56 0.65 0.77 0.14 0.71 -0.38
FDIt 1 0.21 -0.07 -0.29 -0.16 -0.21 -0.34 0.41
HKt 1 0.88 0.74 0.76 0.57 0.51 -0.18
GNEt 1 0.75 0.76 0.79 0.41 -0.18
Kt 1 0.87 0.51 0.83 -0.60
LFt 1 0.61 0.74 -0.59
OERt 1 0.06 -0.21
TOURRECPt 1 -0.64
CPIt 1

4.3. Unit root test

Table 4 shows the results of ADF and PP techniques to identify the degree of order of
integration. Both techniques indicated that all the variables have first degree order of
integration and the ARDL model is more suitable in this case.

Table No. 4: Unit Root Tests Results

ADF Test (P-value) PP Test (P-value)
Order of
Variables At 1st At 1st
At level At level Integration
Difference Difference
-2.2355 -4.5791* -2.3763 -4.5791*
EGt I(1)
(0.1997) (0.0015) (0.1584) (0.0015)
-2.4972 -3.1856** -1.9851 -3.2168**
FDIt I(1)
(0.1290) (0.0341) (0.2909) (0.0319)
-0.6955 -4.6910* -0.6955 -4.6920*
HKt I(1)
(0.8296) (0.0012) (0.8296) (0.0012)
-0.4398 -4.8351* -0.1565 -4.8744*
GNEt I(1)
(0.8868) (0.0008) (0.9318) (0.0008)
-1.2720 -5.5584* -1.2720 -5.6283*
GCFt I(1)
(0.6252) (0.0002) (0.6252) (0.0001)
-1.4827 -6.0253* -1.3738 -6.0253*
LFt I(1)
(0.5249) (0.0001) (0.5778) (0.0001)
0.6031 -3.1631** 0.6070 -2.9448***
OERt I(1)
(0.9867) (0.0357) (0.9868) (0.0556)
-1.4821 -4.6041* -1.4821 -4.6052*
TOURRECPt I(1)
(0.5252) (0.0014) (0.5252) (0.0014)
-2.1653 -5.9798* -2.1041 -5.9798*
CPIt I(1)
(0.2230) (0.0001) (0.2448) (0.0001)
At 1% -3.7529 At 1% -3.7379
Critical Values At 5% -2.9981 At 5% -2.9919
At 10% -2.6387 At 10% -2.6355
Note: I(1) indicated the first order of integration and *, **, and *** represent the significance level at 1%, 5%
and 10% respectively.

4.4. Regression Results

Table 5 shows the ARDL and ARDL Bound test result; In the long-term, the ARDL test result
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The impact of tourism industry on the economic growth of Pakistan
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showed that the FDI has statistically significant and positive influence on GDP growth. The
same result was verified by Malik (2015) and Aziz et al. (2023). Similarly, in the case of
Pakistan from 2008-2013 and concluded that economic growth has been favourably affected
by FDI. The result was contrary to the results of Saqib et al. (2013) that the impact of FDI in
the economic growth of Pakistan from 1981-2010. They used OLS and ADF test for the
estimation and concluded that the economy of Pakistan has been unfavourably affected by FDI.
Similarly, the impact of human capital is useful and remarkable on GDP growth in the long-
term. The same result was verified by Abbas and Foreman-Peck (2008) analyse the outcome
of HK on GDP growth of Pakistan from the year 1961-2005 by using Johansen cointegration
method and concluded that the economy of Pakistan has been favourably affected by human
capital. Similarly, GDP growth is positively and significantly influenced by Government
expenditure in the short run, as its coefficient is 0.9090 and its p-value is 0.0300, which is
statistically significant at 5% level of significance. The result of this study is contrary to the
result showed by Akpokerere and Ighoroje (2013) used data of Nigeria from 1977-2009 by
applying a disaggregated technique and concluded that increasing GNE has no noteworthy
effect on the economy’s growth.

The impact of Gross capital formation is optimistic and noteworthy on GDP growth as its value
of coefficient is 1.9007 and its p-value is 0.0194 which is significant at 5%. The result is same
as the result showed by Zaman and Arslan (2014) and revealed that GCF has an encouraging
impact on growth of the economy. Similarly, the result shows that the GGDP is positively and
significantly affected by labour force in the long-term, as the coefficient is 0.4275 and its p-
value is 0.0835 which is momentous at 10%. The same result was presented by Paudel and
Perera (2009) that there is an optimistic connection between labour force and GGDP. The effect
of Official exchange rate (OER) on GGDP is negative and momentous, as its coefficient is -
0.1150 and its p-value are 0.0248 which is statistically significant. The opposite result was
given by (Adeniran et al., 2014). The researchers concluded that the growth of an economy is
positively but insignificantly affected by exchange rate.

The effect of tourism receipt is encouraging and noteworthy on GGDP in the long-term, as it
coefficient is 2.7757 and its p-value is 0.0164. The same result was verified by different
researchers like Ahad (2016) and Aratuo et al. (2019). The inverse relationship was given by
Ghalia and Fidrmuc (2018), analysed the influence of tourism on GGDP of 133 countries from
the year 1995-2007 by using standard Solow model of growth. They concluded that the GDP
growth has not been significantly affected by tourism. Furthermore, they proved that those
countries which are more dependent on tourism have shown less growth. However, the effect
of consumer price index is negative and noteworthy on the GDP growth as its coefficient is -
0.0923 and its p-value is 0.0877. The same result was given by Ayyoub et al. (2011) and
analysed the link between inflation and GGDP of Pakistan from the year 1972-73 to 2009-10
by using OLS technique. They showed an adverse effect of inflation on GGDP. The opposite
result was confirmed by (Shahid, 2014).

In the short-term, the FDI has noteworthy and encouraging influence on GGDP because its
coefficient value is 0.7267 and its p-value is 0.0094. The same result was verified by Malik
(2015), analysed the influence of FDI on GGDP of Pakistan from 2008-2013 and concluded
that economic growth has been favourably affected by FDI. The result was contrary to the
results of Saqib et al. (2013), investigate the impression of FDI in the GDP growth of Pakistan
from the year 1981-2010. They used OLS and ADF test for the estimation and concluded that
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JHSMS, 2023, 4(2), 2, 18-40 28

 A. Ullah, N. Jan, Z. U. Rehman, & F. Amin
__________________________________________________________________________________________

the economy of Pakistan has been unfavourably affected by FDI. The impact of human capital
is negative and noteworthy on GDP growth. The result was contrary to the result of Abbas and
Foreman-Peck (2008), analysed the effect of human-capital on GDP growth of Pakistan from
the year 1961-2005 by using Johansen (1991) method .They concluded that the economy of
Pakistan has been favourably affected by human capital.

GDP growth is positively and significantly influenced by Government expenditure in the short
run, as its coefficient is 0.4569and its p-value is 0.0025. The impact of GCF is undesirable and
noteworthy on GDP growth as its value of coefficient is -0.0697and its p-value is 0.6301.
However, the GGDP is positively and significantly affected by labour force in the short run, as
the coefficient is 0.6033 and its p-value is 0.0029. The effect of Official exchange rate (OER)
on GGDP is undesirable and significant, as its coefficient is -0.0411and its p-value is 0.0990.
However, the effect of Tourism receipt is optimistic and noteworthy on GGDP. However, the
effect of consumer price index is undesirable and statistically noteworthy on the GGDP.
Furthermore, the ECM value depicted that there are 67% level of adjustment and exist the
cointegration among the variables.

Table No. 5: ARDL tests results

Variable Coefficient Std. Error t-Statistic Prob.*
Long Run Coefficient
FDIt 0.9469*** 0.3957 2.3933 0.0965
HKt 0.5167* 0.0809 6.3907 0.0078
GNEt 0.9090** 0.2334 3.8942 0.0300
GCFt 1.9007** 0.4140 4.5916 0.0194
LFt 0.4275*** 0.1673 2.5554 0.0835
OERt -0.1150** 0.0274 -4.1913 0.0248
TOURRECPt 2.7757** 0.5681 4.8859 0.0164
CPIt -0.0923*** 0.0369 -2.5006 0.0877
Short Run Coefficient
ECMt -0.6729* 0.1304 -5.1601 0.0002
D(FDIt) 0.7267* 0.2385 3.0466 0.0094
D(HKt) -0.1808** 0.0647 -2.7954 0.0152
D(GNEt) 0.4569* 0.1223 3.7352 0.0025
D(GCFt) -0.0697 0.1412 -0.4932 0.6301
D(LFt) 0.6033* 0.1648 3.6613 0.0029
D(OERt) -0.0411*** 0.0231 -1.7768 0.0990
D(TOURRECPt) 0.3222 0.2475 1.3020 0.2155
D(CPIt) 0.0086 0.0271 0.3182 0.7554
C -0.0223 0.1276 -0.1744 0.8643
ARDL Bounds Test Value 4.1334*
Significance level I0 Bound I1 Bound
10% 1.95 3.06
Critical Value Bounds 5% 2.22 3.39
2.5% 2.48 3.7
1% 2.79 4.1
𝑁𝑜𝑡𝑒:∗,∗∗, 𝑎𝑛𝑑 ∗∗∗ 𝑟𝑒𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑡ℎ𝑒 𝑠𝑖𝑔𝑛𝑖𝑓𝑖𝑐𝑎𝑛𝑐𝑒 𝑙𝑒𝑣𝑒𝑙 𝑎𝑡 1%, 5% 𝑎𝑛𝑑 10% 𝑟𝑒𝑠𝑝𝑒𝑐𝑡𝑖𝑣𝑒𝑙𝑦.

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Journal of Humanities, Social and Management Sciences (JHSMS) 29

The impact of tourism industry on the economic growth of Pakistan
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5. Conclusion

Pakistan has a unique area with significant neighbouring landmass and various physical
features. It has huge variety of natural resources such as coastal areas mountains, rivers and
various climatic conditions, which makes it more attractive. It also has plains, forests,
marshland and deserts, despite of such an enormous potential for tourism. Pakistan received a
thousand of tourists each year in the past, but there are many obstacles in the way of tourism
activities like political instability, terrorism, bed law and order situation, lack of proper
maintenance of tourism spots, investment in tourism, and lack of skills about tourism etc. The
main objective of the study is to investigate the impact of Tourism receipt on economic growth
of Pakistan and used data set from 1995 to 2019. This study employed ARDL techniques for
estimation. The study reveals that labour force, foreign direct investment, and gross national
expenditure have inspiring and noteworthy effect on economic growth while GCF and human
capital (HK) have positive in the long-period but has negative in the near-run and noteworthy
effect economic growth. The tourism receipt has encouraging and statistically noteworthy
effect on GGDP. However, inflation-rate has undesirable and noteworthy effect on GGDP. The
exchange rate has negative and significant effect on the GGDP. This study concluded that the
tourism receipt has significantly influence the economic growth of Pakistan. This
recommended that the government itself and motivate to private sector to invest in the tourism
industry because it’s more beneficial in term of earning foreign exchange, creation of Jobs,
improve environmental quality, and enhance the economic growth and also makes easy policies
and provides facilities to attract foreign tourists to increase revenue. Furthermore, Pakistan is
among the under-developed countries of the world which have less capital accumulation.
Therefore, the tourism industry of Pakistan should be developed to earn foreign exchange.

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JHSMS, 2023, 4(2), 2, 18-40 30

 A. Ullah, N. Jan, Z. U. Rehman, & F. Amin
__________________________________________________________________________________________

Declaration of conflict of interest

The author(s) declared no potential conflicts of interest(s) with respect to the research, authorship,
and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship and/or publication of this
article.

ORCiD ID

Amin Ullah https://orcid.org/0009-0003-4550-6443

Nadeem Jan https://orcid.org/0009-0005-5694-0944

Zia Ur Rehman https://orcid.org/0000-0003-4791-6158

Fazal Amin https://orcid.org/0009-0003-7469-5335

Publisher’s Note

IDEA PUBLISHERS (IDEA Publishers Group) stands neutral with regard to jurisdictional claims
in the published maps and institutional affiliations.

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