Tourism and financial development in South Africa: a trivariate approach

In this study, we examine the causal relationship between tourism and financial development in South Africa using data from 1995 to 2017. The study attempts to establish whether financial development Granger-cause tourism in South Africa. The Autoregressive distributed lag (ARDL) bounds testing approach and ECM-based Granger causality test were used to examine the link. The results show that when broad money was used as a proxy for financial development, a distinct unidirectional causality from tourism to financial development was found in the short and the long run. However, when the domestic credit provided by financial sector and market capitalisation of domestic listed companies were used as proxies, a bidirectional causal flow was confirmed in the short run, but a unidirectional from financial development to tourism was found to dominate in the long run. The results confirm the reinforcing effect between tourism and financial development in the short run with financial development taking the centre stage in the long run.