Is tourism a spur to economic growth in South Africa? An empirical investigation

Abstract

ABSTRACT In this study, the dynamic Granger-causality between tourism development and economic growth in South Africa was empirically examined during the period 1995-2016. The study was motivated by the limelight that the South African tourism sector has been enjoying in recent years, on the one hand, and the lack of sufficient coverage of tourism-growth nexus studies in many sub-Saharan African countries, on the other hand. The study used two tourism proxies, namely tourist arrivals and tourism revenue, to examine this link. In addition, the study used exchange rate and foreign direct investment as intermittent variables in a multivariate Granger-causality model in order to address the omission-of-variable bias. Using the auto-regressive distributed lag (ARDL)-bounds testing approach, the study found that although the direction of causality between tourism development and economic growth in South Africa is sensitive to the proxy used and the time under consideration, in the main, a feedback relationship tends to predominate in the short run. The study, therefore, recommends that short-term policy efforts be directed at developing the tourism and the real sectors as both sectors have been found to reinforce each other in the short run, irrespective of the tourism proxy used.