Tourism and Its Impact on The Growth of The Nepalese Gross Domestic Product

Abstract

This article aims to show the impact of Real Tourism Earnings (RTER) on Real Gross Domestic Product (RGDP). A time-series economic analytical design was employed using secondary data covering the period 1990–2022 AD. All data were obtained from the Central Bank of Nepal, the Ministry of Finance, and the Central Bureau of Statistics to establish the impact of RTER on RGDP. In this respect, to capture short-run relationships among variables, the pairwise Engel Granger Test (PRGT), and Error Correction Mechanism (ECM) were developed, and co-integration analysis was introduced to capture long-run relationships among variables. In the paper, a 100 percent increase in RTER leads to a 90 percent positive change in RGDP in the short run; the coefficient is positive as well as significant at the 5 percent level in the short run. ECM has a unit root at the first difference in long-run relationships. The coefficient of ECM -0.96 and significance at 1 percent showed that it corrected all the disequilibrium at the convergent speed of 96 percent. All the stability and diagnostic tests of the model have no symbols of misspecification, and residuals are normally distributed, homoscedastic, and not serially correlated.