Tourism's Impact on Long-Run Mexican Economic Growth

Tourism is one of the most important factors in the productivity of Mexican economy with significant multiplier effects on economic activity. This paper investigates possible causal relationships among tourism expenditure, real exchange rate and economic growth by using quarterly data. Johansen cointegration analysis shows the existence of one cointegrated vector among real GDP, tourism expenditure and real exchange rate where the corresponding elasticities are positive. The tourism-led growth hypothesis is confirmed through cointegration and causality testing. Tourism expenditure and Real Exchange Rate (RER) are weakly exogenous to real GDP. A modified version of the Granger Causality test shows that causality goes unidirectionally from tourism expenditure and RER to real GDP. Impulse response analysis shows that a shock in tourism expenditure produces a short fall and then a positive effect on growth.