Dynamic Inter-relationship between Trade, Economic Growth and Tourism in Malaysia

Based on the export led growth (ELG) hypothesis, this study aims to test a hypothesis that postulate a positive inter-relationship between tourism, trade and economic growth. Although tourism is one of the major components in trade of services, and it has been certified by large number of literatures on the strong correlation between tourism industry and economic development, yet not much is known on the dynamic inter-relationship between these three variables in Malaysia. Closing-up this gaping hole, this study employs the cointegration tests under autoregressive distributed lag (ARDL) structure to investigate a dynamic inter-relationship between economic development, total trade (import and export) and number of tourist arrival for Malaysia and her major ASEAN tourism partners. The estimated result based on the long run time series behavior for number of tourist arrival, volume of total trade and economic development’s indicator shows that these three variables are moved in tandem. Interestingly, in the analysis of short run behavior, we find that number of tourist arrival has significantly Granger caused total trade flows at least for some countries. At the same time, in the short-run, we find that both growth in total trade (export and import) and international tourists’ arrival to Malaysia have uni-directionally Granger caused real income growth and there is statistical evidence for international trade to lead tourist arrival.