DOES TOURISM INFLUENCE FINANCIAL DEVELOPMENT IN KENYA?

Mercy T. Musakwa; Nicholas M. Odhiambo; Sheilla Nyasha

doi:10.7251/ACE2236155M

Authors

Mercy T. Musakwa Department of Economics, University of South Africa, UNISA, Pretoria, South Africa
Nicholas M. Odhiambo Department of Economics, University of South Africa, UNISA, Pretoria, South Africa
Sheilla Nyasha Department of Economics, University of South Africa, UNISA, Pretoria, South Africa

DOI:

https://doi.org/10.7251/ACE2236155M

Keywords:

financial development, market-based financial development, bank-based financial development, Kenya, tourism, ARDL approach

Abstract

Objective: In this study, we investigate the impact of tourism on financial development in Kenya using time series data from 1995 to 2017. The study uses the autoregressive distributed lag (ARDL) bound testing approach to cointegration and error correction model to examine this connection. To increase the robustness of the results, the study uses two proxies of financial development, namely broad money (bank-based financial development proxy) and total value of stocks traded (market-based financial development proxy). Results show that tourism has an insignificant impact on financial development in Kenya – both in the short run and in the long run. The results are relevant regardless of whether the financial development is proxied by a bank-based financial development indicator or by a market-based financial development indicator. This finding points to the fact that, although tourism is one of the main sources of foreign exchange in Kenya, it has no direct impact on financial development. The findings from this study add value to policy makers in Kenya by revealing the insignificant impact that tourism has on financial development, although this is in contrast to other studies that found a positive contribution. Based on the findings, Kenya may not anchor its financial development policies on tourism.

References

Basarir, C., & Cakir, Y. N. (2015). Causal interactions between CO2 emissions, financial development, energy and tourism. Asian Economic and Financial Review, 5(11), 1227–1238. DOI: 10.18488/journal.aefr/2015.5.11/102.11.1227.1238.

Cannonier, C., & Burke, M. G. (2017). Tourism and financial development in small states: Evidence from Caribbean countries. Tourism Economics, 23(6), 1369- 1377. DOI: 10.1177/1354816617689870

Demirguc-Kunt, A., & Levine, R. (2001). Bank-based and market-based financial systems: Cross-country comparisons. In: Demirguc-Kunt, A. and Levine, R. (Eds.) Financial Structure and Economic Growth: A Cross- Country Comparison of Banks, Markets, and Development (pp. 81-140). Cambridge, MA, US: MIT Press. Retrieved from: https://econpapers.repec.org/bookchap/mtptitles/0262541793.htm

Duasa, J. (2007). Determinants of Malaysian trade balance: An ARDL bounds testing approach. Journal of Economic Cooperation, 28(3), 21-40. DOI: 10.1080/12265080701217405

Engle, R. F., & Granger, C. W. J. (1987). Cointegration and error-correction: Representation, estimation and testing. Econometrica, 55(2), 251 –276. Retrieved from: https://ideas.repec.org/a/ecm/emetrp/v55y1987i2p251-76.html

Katircioglu, S., Katircioglu, S., & Altinay, M. (2017). Interaction between tourism and financial sector development: evidence from Turkey. The Service Industries Journal, 38(9-10), 519-542. DOI:10.1080/02642069.2017.1406479

Kumar, R. R., & Kumar, R. (2013). Exploring the development in urbanisation, aid dependency, sectorial shifts and services sector expansion in Fiji a modern growth perspective. Global Business and Economic Review, 15, 371-395. DOI: 10.1504/GBER.2013.056648

Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35, 688-726. DOI:10.1596/1813-9450-1678.

Ministry of Tourism and Wildlife. (2020). Our Ministry. Ministry of Tourism and Wildlife. Retrieved from: http://www.tourism.go.ke/

Ministry of Tourism and Wildlife. (2019). Tourism Research Institute and Magical Kenya. Kenya Tourism Sector Performance Report. ATTA Travel. Retrieved from: https://www.atta.travel/media/17456/kenya-tourism-sector-perfomancereport-2019-v1.pdf.

Ndung’u, J. (2014a). Increasing the level of financial inclusion in Kenya. African Rural and Agricultural Credit Association International Visit to Kenya. Kenya School of Monetary Studies. BIS. Retrieved from: https://www.bis.org/review/r140516b.htm.

Ndung’u, J. (2014b). Banking and Financial Sector Development in Kenya. 2rd National Banking and Finance Conference. Mombasa, Kenya: Institute of Bankers. Retrieved from: https://www.bis.org/review/r140715d.htm

Nyasha, S., & Odhiambo, N. M. (2014). Bank-based financial development and economic growth: A review of international literature. Journal of Financial Economic Policy, 6(2),112-132. Retrieved from: https://www.emerald.com/insight/content/doi/10.1108/JFEP-07-2013-0031/full/html

Nyasha, S., & Odhiambo, N. M. (2015). Economic growth and market-based financial systems: A review. Studies in Economics and Finance, 32(2), 235-255, DOI: 10.1108/SEF-03-2014-0053.

Nyasha, S., Odhiambo, N. M., & Asongu, A. A. (2020). The impact of tourism development on economic growth in sub-Saharan Africa. The European Journal of Development Research. Retrieved from: https://mpra.ub.uni-muenchen.de/107100/1/MPRA_paper_107100.pdf.

Pesaran, M. H., Shin, Y., & Smith, R. (2001). Bounds testing approaches to the analysis of level relationship. Journal of Applied Econometrics, 16(3), 174-189. DOI: 10.1002/jae.616.

Ridderstaat, J., & Croes, R. (2015). The link between money supply and tourism demand cycles. a case study of two Caribbean destinations. Journal of Travel Research, 26(2), 37–40. DOI: 10.1177/0047287515619695.

Shahbaz, M., Benkraiem, R., Miloudi, A., & Tiwari., A. K. (2019). Tourism-induced financial development in Malaysia: New evidence from the tourism development index. Tourism Economics, 25(5), 757-778. DOI: 10.1177/1354816618806123.

Shahbaz, M., Kumar, R. R., Ivanov, S., & Loganathan, L. (2017). Nexus between tourism demand and output per capita with relative importance of trade and financial development: A study of Malaysia. Tourism Economics, 23(1), 168-186. DOI: 10.5367/te.2015.0505.

Song, H., & Lin, S. (2012). Impacts of the financial and economic crisis. Journal of Travel Research, 49(1), 16-30. DOI:10.1177/0047287509353190

Tourism Regulatory Authority. (2020). Legislation. Tourism Regulatory Authority. Retrieved from: https://www.tourismauthority.go.ke/.

UNCTAD. (2020). UNCTAD Stat. Retrieved from: https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=32085.

United Nations Economic and Social Council. (1997). Kenya’s Financial Sector: Institution structure, Evolution and Resource Mobilisation, mobilization of development. UNECA. Retrieved from: https://repository.uneca.org/handle/10855/4926

UNWTO. (2020). World Tourism Barometer and Statistical Annex January 2020, 18(1). UNWTO. Retrieved from: https://www.e-unwto.org/toc/wtobarometereng/18/1.

Wang, Y. (2009). The impact of crisis events and macroeconomic activity on Taiwan’s international inbound tourism demand. Tourism Management, 30(1), 75-82. DOI: 10.1016/j.tourman.2008.04.010

World Bank. (2020). World Bank Development indicators. World Bank. Retrieved from: https://databank.worldbank.org.

World Bank. (2010). Kenya’s Tourism Polishing the Jewel. World Bank. Retrieved from: https://openknowledge.worldbank.org.

Yenisehirlioglu, E., & Bayat, T. (2019). The relationship between tourism income and financial development in the MENA countries. Journal of Business Research, 11(2), 1183-1190. DOI:10.20491/isarder.2019.664.