Does Commodity Trade Openness Beneficial to the Tourism Sector in Korea?

Purpose - Recently, trade openness has expanded in the world level as well as high trade dependent countries like Korea. In turn, a rise of trade openness is expected to affect on the tourism industry. This study investigates the causal relationship between trade openness, outbound tourism expenses, and inbound tourism receipts to explore whether or not trade openness benefits the tourism sector of Korea. Design/Methodology/Approach - We utilized the vector error correction (VECM) model, directed acrylic graph (DAG), and Impulse Response Function (IRF) methods to examine those relationships. While VECM allows to figure out the predictive causation, DAG can test the contemporaneous relationship. IRF allows to find the different effect of trade openness on outbound tourism expenses and inbound tourism receipts. Findings - Our results for VECM and DAG demonstrate that there are causalities of trade openness on inbound tourism receipts and outbound tourism expenses. To evaluate the effect of trade openness on domestic tourism sector in terms of economics and sustainability, we perform the IRF. Results of IRF show that trade openness has a positive and negative effect on outbound tourism expenses and inbound tourism receipts, respectively. Research Implications - These results indicate that trade openness is not beneficial to the tourism sector of Korea, which implies trade openness’s effect on domestic tourism is not sustainable in terms of economic sense.