Exploring the Dynamic Relationships Among Tourism Investment, Tourism Receipts, Exchange Rate, and Economic Growth: Evidence from Pakistan

Abstract

This study examined the role of tourism in economic growth in Pakistan by focusing on tourism receipts, tourism investment, and the mediating role of exchange rate. The study was based on annual time-series data from 1995 to 2023, covering 29 yearly observations. The study followed a quantitative research approach and applied descriptive statistics, trend analysis, normality analysis, correlation analysis, regression analysis, mediation analysis, and diagnostic tests using SPSS. The descriptive and trend results showed that economic growth in Pakistan remained unstable during the study period, while tourism receipts fluctuated but generally showed improvement over time. Tourism investment, measured through the FDI proxy, showed high variation, especially during the mid-2000s, while exchange rate showed a strong upward trend, indicating depreciation of the local currency against the US dollar. The correlation results showed weak and statistically insignificant relationships between tourism receipts and economic growth, tourism investment and economic growth, and exchange rate and economic growth. However, tourism receipts had a significant positive relationship with exchange rate. The regression results showed that tourism receipts, tourism investment, and exchange rate jointly explained 11.9% of the variation in economic growth, but the overall regression model was statistically insignificant. Individually, tourism receipts and tourism investment did not have significant direct effects on economic growth. Exchange rate also had a negative but statistically insignificant effect on economic growth. The study concluded that tourism has economic relevance for Pakistan, especially through its connection with exchange rate movement, but its direct contribution to economic growth was not strongly supported by the selected model. The findings suggest that tourism may become more growth-supportive if backed by targeted investment, improved tourism infrastructure, better destination management, and stable macroeconomic conditions.

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