Analysis of causality between trade and tourism in China

Current literature about tourism forecasting points out the role-playing by international trade in affecting international tourism and international trade flows. The study investigates the nature of causal relationship between international tourism and international trade flows using the case of China. The study applies the Granger no-causality procedure developed by Toda and Yamamoto in a vector auto-regression (VAR) model, and attempts to improve previous tourism forecasting studies, in the context of tourist demand function. Findings indicate a two-way Granger causality between international travel and international trade and hence imply that trade flows do link with tourism in the case of China. Thus, previous tourism forecasting studies using a single equation approach may lead to biased estimates since they fail to consider possible feedbacks between international trade and international tourism.