Tourism and Dutch Disease: A Panel Analysis for Selected South Asian Countries with Cross-Sectional Dependence and Heterogeneity

We investigate tourism-led Dutch Disease in the selected South Asian countries with data covering from 1980 to 2018 as no studies have been done from the South Asian perspective. We use recently developed robust panel econometric methods for this empirical analysis. Our results reveal that concerning variables have long-run cointegrating relationship given their stationarity property and cross-sectional dependency. The ARDL (PMG) and the panel DOLS show that tourism and economy are positively associated in the long-run (0.17 and 0.12). We further reveal that increase in tourism activities reduce manufacturing competitiveness in the long-run (-0.19 and -0.11), which is a symptom of tourism-led Dutch Disease. Our results also confirm that the presence of Dutch Disease persists for a long time. Therefore, we suggest that policymakers can utilize a part of the tourism-generated revenue for the mutual development of both the sectors to alleviate Dutch Disease in South Asia.