Tourism has become an important economic activity in all the countries of the world. It creates
various direct, indirect and induced effects in the economy. This paper attempts to confirm
empirically about the positive impact of tourism in Nepal. It is based on Nepalese data of foreign
exchange earnings from tourism and gross domestic product for the period between FY 1974/75
and 2009/10. Co-integration test has been done for ascertaining long run relationship and error
correction method for short run dynamics. Granger Causality test has been applied to determine
causal relationship between these variables. The evidence confirms the conventional wisdom that
of tourism development, that tourism (represented by foreign exchange earnings) causes economic
growth both in short and long run. The result also indicates bi-directional causality between these
variables.
Tourism comprises the activities of persons traveling to and staying in places outside,
their usual environment for not more than one consecutive year for leisure, business and
other purposes (WTO, 1999). Over the past several decades international tourism has
gained distinct importance around the globe. World tourism recovered strongly in 2010
even exceeding the expectations. The tourists' arrivals grew by 6.7 percent in 2010
against the 4.0 percent decline in the previous year – the year hardest hit by the global
economic crisis (UNWTO, 2011). Similarly, tourism receipt remained at US $ 852 billion
in 2009 (UNWTO, 2010). In Nepal, despite the belated start of formal tourism after the
restoration of democracy in 1952, it gained remarkable growth over the years. In 1962,
6,179 tourists1
travelled Nepal (MOTCA, 2010). It is estimated to be around one million
in 2011 including the arrivals of foreigners by land. Nowadays, Nepal caters more than
half million tourists and earns foreign currency equivalent of about NRs. 16,825 million.
The sector provides employment for about 20 percent of economically active population
and contributes about 3.0 percent on gross domestic product (GDP).
Tourism is one of the productive business activities directed for the production of the
goods and services. It provides goods and services to the customers (visitors, generally foreigners) and employment and income to the locals. With this tourism business,
enterprises and the people (related directly or indirectly) generate earnings from the
operation of the tourism business activities. Further, tourism as an economic activity
produces various direct, indirect and induced impacts in the economy. It ultimately
increases the foreign exchange earnings, generates employment opportunity and increases
income. Again, the resultant income flows being circulation in the economy, encourages
for other economic activities to take place inducing many rounds of income. It also
stimulates for the income and employment in other sectors of the economy (UN ESCAP,
2001).
Tourism has various economic, social, cultural and environmental effects on tourism
destinations (Vanhove, 2005) and the effect can be both positive and negative. Several
studies tried to measure economic impact of tourism and concluded about its significance
for the economy. Nowadays the importance of tourism in economic development of many
countries is well documented. However, there is a dearth of literature in Nepal about the
economic impact of tourism.
