Correlation and causation between tourism development and economic growth in Lebanon

Abstract

The purpose of this thesis is to study the direction of the causality between tourism development and economic growth in Lebanon, and to investigate the existence of a long-run relationship between the two variables. In order to reach our objectives, we estimate a Vector Auto Regression model and apply the Granger causality test. Our findings suggest a unidirectional causality running from economic growth to tourism development thus support the Growth Led Tourism hypothesis. They also identify a positive relationship in the short-run between tourism development and economic growth, and the impulse response fonction reveal a positive relation between them, marked by the positive reaction of either variable in response to a positive shock in the other. Those findings support the necessity to formulate policies aiming to enhance the tourism sector in Lebanon, as well as programs of action towards economic development. Limitations to this research included the unavailability of data which ruled out the initial choice of variables. The value of this study lies in the originality of its application in Lebanon. Moreover, its results further assert the need to develop the tourism sector and promote the expansion of the economy in Lebanon.