Impact of macroeconomic factors on tourism receipts: evidence from SAARC region

Abstract

The purpose of this study is to examine the impact of various macroeconomic factors i.e. per capita GDP; Gross capital formation; trade openness and consumer price index on tourism receipts in selected South Asian Association for Regional Cooperation (SAARC) countries (namely, Bangladesh, Bhutan, Nepal, Pakistan and Srilanka) by using pooled least square, fixed effect and random effect model. The analysis was carried out for the period from 1995 to 2011. By and large, the results reveal that per capita GDP and trade openness both have a positive impact on tourism receipts, as if there is one percent increase in per capita GDP and trade openness, tourism receipt increases by 1.437 percent and 1.982 percent respectively, however, gross capital formation has a significant negative impact on tourism receipt in SAARC region. The results of fixed effect model, which absorb the country specific shocks, show that both per capita GDP and trade openness has a positive impact on truism receipt. However, the magnitude of coefficient varies from pooled OLS to fixed effect model. The final model which incorporate both country and time specific shocks reveal that both per capita GDP and trade openness have a significant impact on tourism receipt, however, the magnitude of the variables in random effect model is less than pooled OLS and fixed effect model. The Hausman model results show that fixed effect model is considered as the best model in the selected SAARC region.