Causality between trade and tourism: empirical evidence from China

Abstract Current literature concerning tourism forecasting points out the role played by international trade in affecting international tourism flows. This study investigates the nature of causal relationship, if any, between international tourism and international trade flows using the case of China. The study applies the Granger no-causality procedure developed by Toda and Yamamoto in a vector autoregresion (VAR) model, and attempts to improve previous tourism forecasting studies, in the context of tourist demand function, by identifying the direction of the endogeniety between tourist travel and international trade. Findings indicate a two-way Granger causality between international travel and international trade and hence imply that trade flows do link with tourism in the case of China. Thus, previous tourism forecasting studies using a single equation approach may lead to biased estimates since they fail to consider possible feedbacks between international trade and international tourism.