Testing the validity of the tourism-led growth hypothesis under long-range dependence

Abstract

Traditionally, the relationship between tourism and economic growth has been studied using methods based on stationary or nonstationary models. In this paper, we explore the validity of the tourism-led growth hypothesis, applying fractional cointegration techniques and comparing the results with those obtained in previous studies. To do this, we study the long-run relationship between GDP and tourism series, using a two-step strategy. First, we apply fractional cointegration methods and then we test the null hypothesis of no cointegration against alternatives which are fractionally cointegrated. For the empirical analysis, we use seasonally adjusted quarterly data for GDP and tourist arrivals for seven European countries from 1990 to 2018. In the empirical exercise, evidence of cointegration is found only in very restricted cases. Therefore, the validity of the TLGH is less clear-cut when this methodology is applied.