Econometric Modeling to Determine the Impacts of Tourism and Hospitality Sector Development on Economic Growth: A Theoretical Framework

This study employs dynamic cointegration and causal analysis to investigate the relationship between the development of the tourism and hospitality sector and economic growth in Bangladesh, based on time series data from 1972 to 2023. The findings confirm the existence of a long-run cointegration relationship between the development of the tourism-hospitality sector and economic growth, as demonstrated by the results of the Johansen and Juselius test and the VEC model estimation. The error correction term is statistically significant when economic growth is treated as the endogenous variable, further supporting this finding. GMM estimates indicate that a 100% increase in the development of the tourism-hospitality sector leads to a 0.46% rise in economic growth. The short-run effect of the variable tourism development is negative and not statistically signifi cant. When per capita real GDP deviates from its equilibrium level, it adjusts by 61.86% within the first year, which is statistically significant, with full convergence in less than two years. Estimated elasticities imply that the tourism-hospitality sector development will contribute to more economic growth over time. The CUSUM and CUSUMSQ tests show that the model can be used for policy-making. The estimated impulse response function shows that a one-standard-deviation shock in tourism-hospitality sector development leads to a positive economic growth response over the next ten years. These findings suggest that the development of the tourism-hospitality sector has a lasting and favorable impact on Bangladesh’s long-term economic growth. The government and other stakeholders should therefore implement effective measures to support this sector to accelerate the country’s overall economic development.