Do Tourist Expenditures Matter for Growth in Botswana? A Vector Auto Regression Approach
Abstract
The study examines the role of tourism as a potential driver of economic growth in a middle-income economy. Specifically, the study analyzes the short run relationship between economic growth and tourist expenditures using annual time series data from 1980 to 2015. The study is motivated by the fact that tourism is being given priority in devising strategies for rural and national development. Botswana has enjoyed economic growth since independence at an annual average of 9, which isconsidered one of the fastest in the world. Though mining revenues have been given the credit for the development of the economy, it is also important to realize the contribution of other important sectors like tourism in the context of an emerging economy. Using the vector auto regression approach, the study supports unidirectional causality moving from tourist expenditures to growth. Findings show that growth responds immediately to shocks in tourist expenditures up to six periods. However, tourism expenditures are not a key driver of growth and their effect on growth face diminishing returns. Demand side policies should focus on reducing inflationary pressures, which improves demand for products by tourists and increases growth. Supply side policies should focus on providing adequate finances to tour operators and tax incentives. These can improve the level of innovation and infrastructure development that are important in extending the impact of tourist expenditure on growth beyond six periods. They will also improve the contribution by fdi inflows in improving tourist expenditures.
Keywords: Botswana, tourism, causality, economic growth
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