An Analysis of Foreign Exchange Earnings through Tourism Sector in Nepal

Abstract

Tourism industry is a most potential industry of the major foreign exchange earnings and job providing sectors is a growing service industry in Nepal. The objective of this study is to investigate Nepal's foreign exchange earnings through tourism with an analysis of the international tourists’ arrival in Nepal. Based on the time series data for the period of 1975 to 2020, this study uses ADF test to test the stationary of the variables, and Johansen approach of co-integration for testing the long-run relationship and Granger Causality test to examine the direction of the causality. The empirical result from the co-integration analysis concludes that there exists long-run relationship among the total foreign exchange earnings through tourism, number of international tourists, average length of stay of international tourists and real exchange rate. The findings from Granger causality analysis shows the existence of unidirectional causality from number of international tourists to total foreign exchange earnings and also unidirectional causality from real exchange rate to total foreign exchange earnings but there is no any causal relation between average length of stay to foreign exchange earnings and total foreign exchange earnings average length of stay. This study suggests that the increased number of international tourists’ arrival, length of stay and real exchange rate will lead to rise in foreign exchange earnings in the long run, which has multiplier effect by increasing number of places of facilities for the tourists.