Tourism and financial development nexus in Kenya: A multivariate approach

Abstract

Abstract In this study, the causal relationship between financial development and tourism in Kenya is investigated using annual time series data from 1995 to 2017. The study was motivated by the perceived role that the tourism sector has played in the various facets of the Kenyan economy over the past decades. Two proxies of financial development were used, namely broad money supply and stock market development (which is proxied by the total value of stocks traded as a percentage of GDP). Two intermittent variables were also used, namely real GDP and real effective exchange rate, thereby leading to a system of multivariate Granger-causality equations. Using the autoregressive distributed lag (ARDL) bounds testing approach to cointegration and ECM-based Granger-causality model, the results show that both stock market development and broad money supply Granger-cause tourism in Kenya, but only in the short run. The results show that both proxies of financial development have the potential to spur tourism development in Kenya, at least in the short run.