REVISITING THE TOURISM-LED GROWTH HYPOTHESIS IN THE PHILIPPINES: EVIDENCE FROM AUTOREGRESSIVE DISTRIBUTED LAG MODEL (ARDL) BOUNDS TESTING APPROACH

Abstract

Tourism has emerged as one of the most dynamic sectors contributing to economic growth in many developing economies. This study revisits the tourism-led growth hypothesis in the Philippines by examining the relationship between tourism expenditure and economic growth using annual time-series data from 1980 to 2022. Employing the Autoregressive Distributed Lag (ARDL) bounds testing approach, the study investigates both the short-run and long-run dynamics between tourism expenditure and Gross Domestic Product (GDP). The results of the unit root tests reveal mixed orders of integration among the variables, justifying the application of the ARDL model. The bounds test confirms the existence of a long-run equilibrium relationship between tourism expenditure and economic growth. The long-run estimation results indicate that tourism expenditure exerts a positive and statistically significant influence on GDP, providing support for the tourism-led growth hypothesis. The error correction model further reveals a significant adjustment mechanism, indicating that deviations from long-run equilibrium are corrected over time. Moreover, the Granger causality analysis identifies a significant unidirectional causal relationship running from economic growth to tourism expenditure, suggesting that economic expansion facilitates tourism sector development. Diagnostic and stability tests confirm the robustness and reliability of the estimated model. Overall, the findings highlight the important role of tourism expenditure in supporting economic activity while demonstrating that sustained economic growth also serves as a foundation for tourism development. The study provides valuable policy insights for strengthening tourism strategies and enhancing the contribution of the tourism sector to sustainable economic growth in the Philippines.