Tourism Receipts, Health and Economic Growth: Johansen Cointegration and Granger Causality Approach

Tourism is one of the largest and fastest growing industries in the world. The upsurge of interest in the role of tourism for economic growth is due to its contribution to the host country in terms of foreign exchange earnings, employment, multiplier effects, etc. This turns the sector into a potential strategic factor for economic growth. Tourism in Malaysia follows the same trend. It is fast growing and becoming a major contributor in foreign exchange earnings, second only to manufacturing. Apart from that, government resources are not unlimited. One of the major government expenditures in developing countries is related to health. Thus, what is the effect of health on economic growth in the long run? In addition, the mixed empirical results associated with Granger causality among tourism, health and economic growth have inspired the study to venture into this area within the Malaysian context. Therefore, the study's objectives are to determine statistically: 1) the determinants of long run economic growth; 2) the directions of Granger causality; and 3) the speed of adjustment for economic growth. The study employs econometric techniques namely Johansen cointegration and Granger causality in vector error correction model (VECM). Based on time series data from 1974 - 2010, the study comes out with the following results: 1) the long run relationships reveal that tourism receipts and health are positively and significantly influencing economic growth, 2) economic growth and health precede tourism receipts and 3) the speed of adjustment is 0.11 per cent. The results obtained in the study add to the knowledge in this field and suggest to the policy makers to further improve and sustain tourism to generate higher economic growth.