Tourism expansion and sustainable economic growth in Bangladesh: long-run gains or hidden costs?

Abstract

Economic diversification within the context of tourism expansion has been propagated as a solution to diversifying economies in developing economies, but its long-run contribution to economic growth has come under empirical questioning. This study attempts to examine the short- and long-term relationship between tourism and economic activity in Bangladesh based on the annual data for the period 1991–2021. An ARDL bounds-testing methodology is used for modeling GDP using tourist arrivals as the primary explanatory variable and gross capital formation, CO2 emissions, population growth, and trade openness as macroeconomic controls. Results show that there is a long-run equilibrium between the variables. The coefficient for tourist arrivals is negative and significant in the long run but insignificantly positive in the short run. That negative long-run association is consistent across all three types of estimators, FMOLS, DOLS, and CCR. The relationship between gross capital formation and GDP is positive and statistically significant in all specifications, whereas the significance of CO2 emissions is found to be weak. The error correction term suggests that approximately 17% of short-run disequilibrium is being corrected each year. Overall, the expansion of tourism in Bangladesh does not show any statistically significant short-run impact on GDP and has a negative long-run elasticity.