Microsoft Word 2007 ichrie conference Proceedings Final-Final 06-06-07. doc

Key Words:
Tourism development; Economic activity; Exchange rate; Exports; Asian tourist destinations. 
INTRODUCTION 
Tourist receipts can contribute the balance of payments through foreign exchange earnings, which in turn 
could be used to import capital goods to produce goods and services and hence improve the national economy 
(McKinnon, 1964). Economic benefits resulted from tourism activity also include tax revenues and employment 
generation (Avelini Holjevac, 2003). Dritsakis (2004) further stated that tourism also influenced the cultural sector 
by improving living standard of people and the cultural standards and facilities, and the fiscal sector through 
beneficial effects on public economics. Consequently, tourism has been widely promoted in many countries as part 
of the solution to their economic problems since it is seen as a critical source of foreign exchange earnings, 
employment of domestic labors, a significant improvement in the cultural and fiscal sectors and hence a contributor 
to economic growth. 
Because of the crucial role of the tourism industry in the world economy, a positive impact of tourism 
development on the national economy is commonly assumed. However, Papatheodorou (1999) pointed out that 
economists have not paid much attention to empirical investigation of the impact of tourism development on a 
country’s economy. A vast amount of economic research has been conducted on the causal link between trade and 
economic growth.
In comparison, only a few research papers have examined the relationship between tourism and 
economic growth. Balaguer and Cantavella-Jorda (2002) proposed a tourism-led growth hypothesis that tourism 
plays as a major role in the national long-run economic growth. Marin (1992) argued that tourism-led growth could 
happen when tourism acts as a stimulating factor across the overall economy in the form of spillovers and other 
externalities. Balaguer and Cantavella-Jorda (2002) tested the tourism-led growth hypothesis that the tourism sector 
played a key role in the development of the Spanish economy. Results of cointegration and causality tests supported 
the hypothesis by showing a long-run relationship between tourism and economic growth and a one-way causality 
running from tourism activity to economic growth. Dritsakis (2004), on the other hand, examined whether tourism 
could serve as a long-run economic growth factor in Greece. He showed a long-run relationship between tourism 
and economic growth and a two-way causality between the two variables. Kim, Chen and Jang (2006) found similar 
results as in Dritsakis (2004) with Taiwanese data. Kim et al. (2006) also detected a long-run link and a two-way 
causality between tourism expansion and economic development in Taiwan.

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