Tourism, Macroeconomics, Growth, and the St. Louis Equation

Abstract

This study tested the following research questions: (a) Is tourism development helping to untangle the exogenous from the endogenous of monetary and fiscal policies behavior? (b) Is tourism development a determinant of economic growth in the presence of the macroeconomic variables? (c) Is there a stable long-run relationship among economic growth, tourism development, monetary, and fiscal policies in Nicaragua? (d) Is there a presence of Granger causality? Using nominal and real values, this study tested the adequacy of the expanded St. Louis equation with three methodologies: the Almon lag-distributed methodology; the autoregressive distributed lag bounds testing approach to cointegration; and the Granger methodology was applied to investigate causality. The data covered the period 1960–2016. First, the results have indicated that tourism development and monetary policy bear the task of the short-run adjustment to a long-run equilibrium. In the long-run, a 1% of sustained growth rate in tourism development would imply an estimated increase in gross domestic product (in real terms) of nearly 0.41%. Second, there is a log-run relationship among economic growth, monetary policy, fiscal policy, and tourism developments. Third, the results confirm the hypothesis that tourism development is an important, direct, and independent economic sector in explaining economic activity changes, in the case of Nicaragua. Fourth, there is unidirectional or one-way (TR → GDP) Granger causal effect running from tourism development to economic growth. This study has provided useful guidance for policymakers engaged in tourism policy formulation, a modeling and quantitative reference material to academia, and other researchers who might be interested in conducting research in similar or related areas of the study.