Exploring the Nexus Between Tourism and Output in Cook Islands: An ARDL Bounds Approach

Abstract

Tourism plays an important role in the development of Cook Islands. In this paper we examine the nexus between tourism and growth using quarterly data over the period 2009Q1–2014Q2 using the recently upgraded ARDL bounds test to cointegration tool, Microfit 5.01, which provides sample adjusted bounds and hence is more reliable for small sample size studies. We perform the cointegration using the ARDL bounds test and examine the direction of causality. Using visitor arrival and output in per capita terms as respective proxy for tourism development and growth, we examine the long-run association and report the elasticity coefficient of tourism and causality nexus, accordingly. Using unit root break tests, we note that 2011Q1 and 2011Q2 are two structural break periods in the output series. However, we note that this period is not statistically significant in the ARDL model and hence excluded from the estimation. Subsequently, the regression results show the two series are cointegrated. The long-run elasticity coefficient of tourism is estimated to be 0.83 and the short-run is 0.73. A bidirectional causality between tourism and income is noted for Cook Islands which indicates that tourism development and income mutually reinforce each other. In light of this, socio-economic policies need to focus on broad-based, inclusive and income-generating tourism development projects which are expected to have feedback effect.

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Notes

  1. 1.

    The sectoral numbers are based on the national account statistics of Statistics of Cook Islands in 2013 and authors’ own calculations. We use data from 2013 national account for discussion from here on. http://www.mfem.gov.ck/mfemdocs/stats/statistical-series/national-accounts/764-quarterly-gdp-june-2014-tables.

  2. 2.

    At best the break tests picked up the major event in Cook Island. However, in the presence of small sample size, it is usual that break period dummy tend to be not statistically significant and inclusion of it can distort the cointegration coefficients and diagnostic test results (Kumar et al. 2015a, b).

  3. 3.

    Given the relatively high tourism elasticity coefficient, tourism in Cook Islands can be regards as a super luxury good. Moreover, a relatively high visitor elasticity coefficient is expected for Cook Islands since it is an ideal destination for tourists (sea, sand and sunshine).

  4. 4.

    Rao and Takirua (2010) highlight similar issues in Kiribati, which is a small island economy.

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Correspondence to Ronald Ravinesh Kumar.

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Kumar, R.R., Stauvermann, P.J., Patel, A. et al. Exploring the Nexus Between Tourism and Output in Cook Islands: An ARDL Bounds Approach. Soc Indic Res 128, 1085–1101 (2016). https://doi.org/10.1007/s11205-015-1070-y

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Keywords

  • Tourism
  • Economic growth
  • Small island economy
  • ARDL approach
  • Causality test
  • Cook Islands