International Tourism Reciepts and Economic Growth in Kenya 1980 -2013

Abstract

This study aimed at exploring the relationship between international tourism receipts and economic growth in Kenya using a time series data of the period 1980 to 2013. Specifically it sort to answer two questions on causality between international tourism receipts and economic growth as well as the effect of international tourism receipt on Kenyan’s economic growth. The study applied OLS regression, Cointegration and Granger causality test to obtain the study objectives. Results from OLS regression showed that all variables are statistically insignificant except average wage and gross fixed capital formation in determining the economic growth of Kenya under the period of study. Equally result from the causality test showed that all variables in the model were cointegrataed in the long run implying they could be used to explain changes in Kenyan economic growth within the period under study. However, in the short run, the study found a unidirectional causality which ran from international tourism receipts to economic growth. The study findings conforms to Lee and Chang (2008), Oh (2005), and Bridaet. al, (2008b) who found a causality running from international tourism receipts to economic growth but contradicts Kim et. al, (2006) whose causality was a bidirectional. The study recommends government intervention into the sector through relevant policies such as strengthening the tax body (KRA) on all foreign companies dealing with tourism activities within the country so as to maximize gains from such companies, investing more funds to the industry through improving infrastructure to the attraction sites as well as incorporating the communities around the attraction sites as tour guides to enhance welfare distributions from the gains from the tourism sector.