Time-varying linkages between tourism receipts and economic growth in a small open economy

Abstract

The causal link between tourism receipts and GDP has recently become the major focus of some recent studies in tourism economics. Results obtained in these studies about the causal link appear to be sensitive with respect to the countries analyzed, sample period and methodology employed. Considering the sensitivity of the causal link, we use the rolling window and time-varying coefficients estimation methods to analyze the Granger causality based on Vector Error Correction Model (VECM). When applied to Turkey for the 1963–2006 periods, this methodology enables us to overcome differences in the outcome of the tests performed in other studies for tourism receipts and GDP. The findings of this paper are as follows: results from the full sample within the VECM model indicate that there is no Granger causality between the series, while the findings from the time-varying coefficients model based on the state-space model and rolling window technique show that GDP has no predictive power for tourism receipts; however, tourism receipts have a positive–predictive content for GDP following early 1980s.