014 - Impact of Tourist Arrival in Economic Growth, Empirical Evidence From Malaysia- Dayang Hummida

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  1 Impact of Tourist Arrival in Economic Growth:Empirical Evidence fromMalaysia Dayang Hummida Abang Abdul Rahman a ,A.M Dayang- Affizzah b ,Salbiah Edman c Department of Economics, Faculty of Economics and Business, UniversitiMalaysia Sarawak (UNIMAS)Email:aardhummida@feb.unimas.my a ,amdaffizah@feb.unimas.my b ,esalbiah@feb.unimas.my c ABSTRACT This study usessecondary data from 1977 until 2011 to determine the relationship between tourist arrivalsand economic growth in Malaysia. Apart from that, the other objective of this research is to investigate thecontribution impact of tourism to economic growth. Thereare several methods of analysis were used toanalyse the data which are Unit Root test(ADF & PP), Cointegration test (Johensen and Jeselius), normalitytest and Granger Causality test.The resultshows that there isapositive relationship between tourist arrivalsandeconomic growth in Malaysia.Keyword:Economic growth;causality; Tourist arrivals. INTRODUCTION Tourism industry which already growing in ancient times found successful becomes generating resources of high foreign exchange revenue. Furthermore, tourism is one of these important generators of income andemployment creation. Tourism can be defined as process, activity, and result which arose from relationshipand interacting among tourists, tourism suppliers, host governments, host communities, and surroundingenvironments which involved in attracting and hosting of visitors (World Tourism Organization [WTO],2003) 1 . In addition, tourism is a human activity, which encompasses human behaviour, resource utilization,and interaction withother people, economy and environments (Adrian Bull, 1995).Apart from that, peoplecome from this country also could categorise as tourist. Visitors were divided into two, firstly tourist thatmeans temporary visitors to a country at least 24 hours, forthe purposes of leisure or business and; secondlyexcursionists that means temporary visitors staying in a country less than 24 hours, for the same purposes,but excluding transit passengers (Adrian Bull, 1995). At the same time, tourist have are various perspectivein different countries. Mohammad, Elsadig & Abdur (2011) also mentions that Malaysia can become one of the leading tourist destinations competing with other popular destinations of the global economy. Inaddition, tourism sector success many countries worldwide, including Malaysia, is often measured in dollarsand cents or specifically by the number of international tourist arrivals and the income they bring(Baharuddin, Ahmad, Jamil & Kong, 2000)According to Khaled (2009), tourism term is a kind of universal remedy for some of the macroeconomicproblems, as an engine for social transformation and to produce a good image on the global platform driverin an era give incentive that is too generous to industry. As we know, tourism represents one ofthe mostdynamic economic sectors in the world (Edgardo, 2005; Imran, Muhammad & Fareed, 2010; Jamieson,2000). However, tourism also can give the positive and negative impact to our economic growth. Tourism isalso main source and the biggest contributionin economic Malaysia.Nowadays, tourism industries 1 The World Tourism Organization is the United Nations agency responsible for the promotion of responsible, sustainable anduniversally accessible tourism. This organization also promotes tourism as a driver of economic growth, inclusivedevelopment and environmental sustainability and offers leadership and support to the sector in advancing knowledge andtourism policies worldwide.  2becoming increasingly vital namely are catalyst in Malaysian economic development and contribute much to income and country’s growth. Furthermore, it can become aspiring a foreign centre for tourism. Mal aysia isan interesting holiday destination offering something for everyone to enjoy their holiday. According to WTO (2005), Malaysia was ranked as the thirteen world’s top tourist destinations while within ASEAN region Malaysia was the leading country inreceiving inbound tourists by controlling about 32.7 percent of total arrivals in 2004 (WTO, 2006). The country’s main gateway is the Kuala Lumpur International Airport (KLIA). Besides, it also offers low cost flight which is Air Asia in Low Cost Carrier Terminal (LCCT).Other major international airports are Langkawi, Penang, Johor Bahru, Kota Kinabalu and Kuching(Malaysia, 2012).According to Syahida (2003), in the tourism industry, the tourism attractions are keyfactors in making a destination attractive and exciting. However, they are a few reasons for tourist to comethe country. In generally, factors that attracting the tourists is culture, demography, political environment,and economic growth. Firstly, endowed with a diversity of culture, Malaysia offers a’ truly Asian experience. Malaysia is a melting and amalgamation of people from various races (Tourism Malaysia;National and Marine Parks, 2010).Moreover, factor that attracting the economic growth in Malaysia is thesize and value of a nationaleconomy is normally expressed as the total value of all goods and servicesproduced by the economy during a specified time period, such as one year (Adrian Bull, 1995). This industryperceived as contributed on generating foreign exchange earnings, employment and income. Norsiah Kadir(2008) found that the rising economic importance of the industry had been fuelled by the large and growingnumber of international tourists. However, the tourists that come to our country can give some effect andchallenges face the Malaysia tourism industry Table 1: Total Number of Tourist Arrival and GDP in Malaysia (2007-2011)YearTourist ArrivalGDP Constant Price 200720.9 million506,341200822.0million530,683200923.6million522,001201024.6million559,554201124.7million590,353Source: Department of Statistics MalaysiaTable1 shows GDP and tourist arrival from 2007 to 2011. In year 2007, the number of tourist arrival is 20.9million and the total GDP in Malaysia is 506, 341. Whereas in year 2010, thenumber of tourist arrivalslightly increase to 22.0 million and GDP also rapid dramatic sharp to 530,683. After that in year 2010, thetotal tourist arrivals only encounter rose dramatic a litter that of 24.6 million and the total GDP is 559,554.Lastly, in year 2011 the total tourist arrival is 24.7 million and the total GDP is 590,353. This prove that thehigher tourist arrival, that will become dramatic sharp GDP and the largest contributor to this country.Tourism sector is the largest generated intoeconomic growth in Malaysia. This is the main reason for thegovernment support and promotes tourism throughout the world. Furthermore, this sector can give apositive impact upon economic growth and development in Malaysia. According to Edgardo Sica (2005),today tourism represents one of the most dynamic economic sectors in the world and the study aims to verifyif tourism represents a determinant of growth in such countries. Different from other perspective, tourismshould generate employment and income, lead to a positive tourism balance of payments, stimulate thesupplying sectors of tourism, and lead to a generally increased level of economic activity in the country andwill give an impact on the frequently used quantitative measure of the economic development, grossdomestic product (GDP) (Edgardo, 2005; Stanislay and Craig, 2006; Nanthakumar, 2007). In fact, tourismindustry is largest contributed to our economic country.Another key point, Syahida (2003) also agreed thattourism can create needed jobs for residence, generate needed funds to improve the lives of local people andincrease business for local merchants in small coastal town seeking economic security. In other word,tourism industry not only benefits to economic growth in our country, but it also benefited to the people of this country.Sara and Elias (2008) also belief that there a significant relationship between economic growthand tourism. In addition national economy to benefit from tourism depends on the availability of investmentto develop the necessary infrastructure, and capacity to supply the services that tourists require. Furthermore,when a country becomes more recognized, thus it facilitates to attract foreign travels (Business travels),  3which leads to an increase in the foreign reserve of the country. Therefore, indirectly it will increase ourFDI.On the contrary, Samina (2010) found that tourism led to a growth of household incomes and governmentrevenue directly and indirectly by means of multiplier effects, improving balance of payments and provokingtourism-promoted government policies. Indirectly, household will be active participating contribution todevelopment of the nation. In addition, it can improved policy environment for sustainable tourismdevelopment has major implication for macroeconomic goals and national social development objectives,especially those related to poverty reduction (United Nations, 2007). They also mention that at the sametime, are new opportunities for increasing the efficiency and effecti veness of tourism’s contribution involving the government, the private sector and other stakeholders.As noted in the previous section, tourism is one of the largest and fastest growing industries in the globaleconomy and currently the third most important industry for Malaysia in term of foreign exchange earning(MIER, 2008). Balaguer and Jorda (2002) explored the role of tourism for the economic growth of Spainusing cointegration and causality testing. Adamos and Sofronis (2009) have acknowledged thatdiminishingreturns will eventually set in, putting a limit until level that the tourism sector can contribute on countrieswelfare. Tourism is not only one creator of GDP, but has an important contribution to value added [Minciu,2000, 25]. This industrycan also have an impact on natural resources in the various tourist destinations, oneveryday life of these locations and also on the individuals from those areas, whether rural or urban.Therefore, this study try to fill this gap by investigate the between Gross Domestic Product (GDP) andtourist arrivals in Malaysia. The problem is to understand the difficult of effectiveness of virtual tourtechnology for the market of tourist places in our country in particularly with grows of tourism industry.Other than that, it is difficult to our country to attract the international tourist especially from westerncountry. Furthermore, is that our place and product in our country will satisfy the tourist desire. The visitorcan also virtually browse through a souveni r or gift shop that’s on internet before deciding to buy anything they wish (Prasana, 2002). This study gives the opportunity for country to identify the real source foreconomic growth in this country. Different from other research, this study merely using two variables only;the fist was total tourist arrival and secondly is GDP in Malaysia. In other words, this study would like toinvestigates the contribution of tourism in related to the Malaysian economic growth whereby provide therelevant recommendation of government policy to strengthen the economic performance in Malaysia. LITERATURE REVIEW A development in tourism industry is really emphasized therefore the interesting places in Malaysia canattract more touristsarrival to come to Malaysia.Alfartas (2009) investigated that to have a developmentincreasing in this sector a demand from the people must be created and that cannot be happen if they only have a tourist’s attractive place. Apart of that, government and private sector must participat ion through along term plan. In contrast, Sica (2005)saidthat they are other factors contributed to the rapid developmentof tourism in the South-East regions, for example are technological improvements, new marketingpromotional strategies and elimination of political barriers. Moreover, in order to, tourism sector become analternative driving force to achieve economic development, the part of gains from tourism should beallocated for improving the living conditions of weak population.According to the Salleh (n.d), explored the tourism development can be attracting foreign direct investment(FDI) inflow that having significant impact in generating economy. In addition, according to Kweka et al.(2003) also have the same opinion. They mention that inTanzania, the contribution of tourism sector hasattracted investment and policy initiatives to supports its development. The certain investment can givebenefit both communities and reserves. Apart of that, they also mention that tourism sector can generateindirect tax revenue.Tourism sector will also give in directly or indirectly contribution to one country.Households indirectly will be earning income more by working in tourism sector or supporting industries.Indirectly, tourism industry will increas e economic growth and further increase this country’s name. In  4addition, according to Brida et al. (2008), investigated the tourism sector have relationship among elasticityof tourism expenditure ( TourExp) , real exchange rate (  RER) and in long-run economic growth ( GDP). Policy implications will be accessible this by enhance performance of the economic growth and increasetheir administrative management performance. In contrast, Malik et al. (2010) examined that there is long-run relationship between the number of tourists, GDP growth rate and current account deficit. It will increasePakistan balance of payments accounts by cutting down current account deficit and the GDP will beimproves.According to the Zortuk (2009), identify that tourism industry inTurkey have emerged as a great empirewith annual foreign exchange that high and job opportunities directly and indirect. In fact to, it is not onlyincrease foreign exchange income, yet it had spurred growth of the tourism industry and additional it alsotriggered overall economic growth. As a matter of fact, Tohamy and Swinscoe (2000) having the same opinion on the matter above. Moreover based on export revenue, tourism has become the world’s largest source of income and item that is important in balanceof payment to most of the country. The direct effectsof tourist expenditure on business are tax potential contribution that estimates high from total of tax revenue.That research also indicated that direct impact foreign tourist expenditure about four times the one percentcontribution from hotel and restaurant to GDP in national account.Furthermore,Mazumderet al. (2011), think that tourism industry not only creates considerable highmultiplier effects but also stepped up the inter-sectoral linkagesin the economy. Therefore, multiplier effectthat is direct, indirect, and induced is reason which helps in expand tourism contribution to economic. Inadditional, the capacity to generate ripple effect by tourism makes one important medium of foreigncurrency injection which had been significant attention for developing countries economic development. Thedeveloping country has been gradually depending on income streams from tourism while traditionaleconomic sector has been less potential in contributingto GDP country. In contrast, Evan et al. (2008) hasdifferent perspective. They found that tourism industry is as one of the income earners that are attracts greatinterest from policy aspect for economic growth that continued in this country. METHODOLOGY This section explains more about the method to be used in this research. The Methods and techniques of thisstudy will involve several aspects such as the conceptual framework, research design and hypotheses of thestudy. Furthermore, this study was focuses on the period of the studies data, the variables that used, and howdata is analyzed and what the data analysis carried out from these studies. In this section, the time series dataalways includes four standard procedures which are Unit root test (ADF, PP), Normality test, Co-integrationtest (Johansen and Jesulius, JJ 1990) and Granger Causality. Data This study use the time series annual data from year1977 until year 2011which is was used theyearlydata.The data that used areGDP and total number of tourist arrival to Malaysia.The data had been found fromDepartment of Statistic Malaysia. Unit Root test Unit root test is test to defined stationary or non-stationary in the result.The unit roots test is a more formaltest, which is required to check the stationary properties of the variables. Stationary is refers to the statewhere the underlying stochastic process that generates a data series is invariant with respect to time. It isimportant for estimation because with apply least squares regression on non-stationary variables can givemisleading parameter estimates of the relationship between variables. Meanwhile, with checking forstationary, it will be explain what kind of processes we need to estimate for our models. If the characteristicsof the stochastic process change over the time, we can say that the process is the non-stationary. Non-stationary time series data is necessarily contain the permanent components. The mean and variance of a
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