Tourism and Economic Growth in Korea: Focusing on the Structural Break
Journal of International Trade & Commerce, Vol.14, No.4, pp.177-188
12 Pages Posted: 15 Jan 2019
Date Written: August 22, 2018
This paper investigates the tourism-led growth hypothesis in the case of Korea considering a possible structural break from exogenous shocks, such as the Asian financial crisis in 1997 and the controlling policy of outbound travel in the latter half of the mid-1980s. To examine the possible structural break from exogenous shocks, we utilized a structural break unit root test. Adapting Granger causality test and variance decomposition, we found the relationship between tourism and economic growth in Korea. The results of the structural break test show that structural break points exist in 1979 and 1997 for tourism receipts and GDP, respectively. Before and after structural breaks points, we found a different relationship. We also found that a GDP shock only explained 22% of variation errors in tourism receipts based on the results of a variance decomposition. These results have contributions and implication to previous literature. First, the structural break from an exogenous shock can make a change in the relationship between tourism and economic growth. Second, a rise in GDP may lead to outbound tourism rather than domestic in Korea.
Keywords: Granger Causality, Korea, Structural Break, Tourism-Led Growth, Variance Decomposition
JEL Classification: Z32, Z38
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