Tourism Development and Economic Growth in Korea: Causal Relationship in Tails

Many empirical studies have investigated the existence of a causal relationship between a country's tourism growth and economic growth. However, the findings from these studies have been inconclusive. Some studies have found evidence of a unidirectional causal relationship, whereas others have found a bidirectional causal relationship. This inconsistency may be due to the usage of different frequencies of data or an incomplete description of the causal relationship. This study examines the causal relationship between economic growth and tourism growth in Korea using three types of Granger noncausality tests: the classical Granger noncausality test, a robust Granger noncausality test, and a Granger noncausality test in quantiles. Our empirical results provide evidence of what appears to be a bidirectional causal relationship between tourism growth and economic growth in overall quantile intervals. There is strong support that tourism growth leads to overall economic growth in Korea. However, in the reverse relationship, economic growth only has a significant effect on tourism at low quantile levels of tourism growth. These findings suggest that the causal relationship is heterogeneous and depends on different levels of tourism growth and economic growth.