Tourist Arrivals and Shadow Economy: Wavelet-based evidence from Thailand

Abstract

It has been seen in literature that shadow economic activities is a determinant of tourism. In the background of poor enforcement of law and incidence of corruption, it has been hypothesized that tourism development might be a determinant of shadow economic activities. In this study, we analyze how tourist arrivals and development of shadow economy are associated in Thailand, following a frequency-domain causality analysis framework. Through wavelet coherence, it has been found that there exists co-movement between tourist arrivals and development of shadow economy in the short run, while the long run coherence can be seen during the post-tsunami period. By employing wavelet-based causality analysis, bidirectional causal association has also been found between tourist arrivals and development of shadow economy across different frequency levels. In order to promote the sustainable tourism, the government should have a control over the black-market activities, and encourage people-public-private partnerships to enhance the informal economy.