Does Tourism Drive Economic Growth? Evidence from a Coastal Economy Over Three Decades

Abstract

This study examines the relationship between tourism and economic growth in Khanh Hoa Province, Vietnam, using time-series data covering the period from 1994 to 2023. It employs the Autoregressive Distributed Lag (ARDL) model, Vector Autoregression (VAR), and Granger causality tests to analyze both short-run and long-run dynamics. Gross regional domestic product (GRDP) is specified as the dependent variable representing economic growth, while tourism revenue is treated as the independent variable representing tourism activity. A COVID-19 dummy variable is included to control for pandemic-related shocks. The results show no evidence of a long-run cointegration relationship between tourism and economic growth. The Granger causality test indicates a unidirectional relationship from economic growth to tourism development, with no evidence supporting the reverse direction. Furthermore, variance decomposition results suggest that the contribution of tourism to economic growth remains limited, accounting for approximately 8.5% after ten years. In summary, the findings do not support the tourism-led growth hypothesis (TLGH) in the context of provincial economies. Instead, they highlight the limited and dependent role of tourism in driving long-term economic performance. This paper contributes to the existing literature by providing evidence from a coastal economy within a developing country. Policy implications underscore the need for more balanced and diversified development strategies to enhance the sustainability and resilience of economic performance.