Analysis of Asymmetries in the Nexus between Tourism and Balance of Payments Deficit: An Updated Evidence from Pakistan

Abstract

The current study intends to securitize the asymmetric link between tourism and deficit in the balance of payments of Pakistan. To this end, the study deploys the annual data for 1976-2019, applying a novel cointegrating approach, viz, asymmetric Autoregressive-Distributed Lag (NARDL) technique. The Zivot and Andrews (1992) test is also deployed to capture the potential structural break. The findings confirm the non-linear cointegration among the selected series. Additionally, the results reveal that the deficit in the balance of payment (BOPs) responds to the positive and negative changes in the tourism atypically. Besides, the balance of trade deficit, real effective exchange rate, and fiscal balance deficit exhibit the direct association with BOPs deficit. Based on the outcomes, the study recommends some crucial policies to encourage the tourism sector in Pakistan as it has significant potential to reduce the deficit in the BOPs.