Examining the macro-determinants of tourist arrivals in India

Abstract

The present study analyzes the asymmetric association of exchange rate and world income with inbound tourism demand in India using a recently developed nonlinear autoregressive distributed lag model. For this purpose, the study uses monthly data from January 2003 to December 2020 for inbound tourism demand, real effective exchange rate, and world income as the variables of the model. The study used an asymmetric causality test on the lines of Hatemi-J. The findings confirm the existence of a nonlinear association between exchange rate and tourism demand in the long run. Furthermore, the increases in the world income have a positive and significant effect on tourist arrivals in India. In addition, the findings indicate that exchange rate shocks play a vital role in the long run. The cointegration test is supplemented with nonlinear causality analysis. The causal result depicted positive shocks in the exchange rate and world income sharing a unidirectional causal relationship with tourist arrivals. The result of this research can significantly facilitate the policymakers for devising short-run as well as long-run policies to consolidate the macroeconomic fundamentals such that tourism demand can be enhanced in India.