An empirical analysis of the causal relationship between tourism growth and the service industry in Thailand
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Abstract
The relationship between economic growth and tourism development has been a central issue for researchers validating the tourism-led growth hypothesis. Much of this literature revolves around using aggregate measures of economic growth and tourism arrivals to test the tourism-led growth hypothesis. However, this paper aims to investigate the causality between growth in tourism and the expansion of services in Thailand. It is posited that evaluating the causal relationship between tourism and the development of the service sector is relevant since the service sector is a primary driver for economic growth and recovery. For this purpose, a Granger causality test was performed based on Toda-Yamamoto and a vector error correction model (VECM) using aggregated and disaggregated service production index (SPI) and international tourist arrivals. The findings show that causality runs from the development of the production of services as a whole to tourism growth. In turn, the hotel industry benefits from expanding international tourist arrivals. Evidence was also found of bidirectional causality between tourism growth and indices reflecting the production of real estate, transportation, and telecommunications. The findings suggest that the contribution of tourism growth to the production of services may depend on how integrated tourism is with the service sector. Therefore, it is necessary that strategic partnerships between tourism authorities and private stakeholders (i.e., telecommunications firms) be created and strengthened.
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