Analysis of cointegration and causality between tourism, economic growth and exchange rate in India

Abstract

The Indian tourism industry has flourished rapidly in the past years and is expected to expand further, thereby
providing immense employment opportunities and contributing massively to the country’s overall development.
This has made it necessary to assess the impact that tourism might have on a country’s economy. This study
examines the association among tourism, growth of the economy and currency rate in India and investigates the
existence of co-integrating relationship and causality among these variables. The findings of co-integration
analysis signal that tourism, economic growth and currency rate are co-integrated. Further, the study evinces the
prevalence of unidirectional causalities between foreign exchange earnings and exchange rate and also among
foreign exchange earnings and real GDP. The study also revealed that a one way causal link is pervasive
between real GDP and the foreign tourist arrival figures.