ABSTRACT
Nowadays, the world economy earns huge income from travel and tourism industry. Since, the world has been converging towards service economy, the importance of the tourism industry to any country has been increasing significantly. Both developed and developing countries are receiving foreign exchange from tourism industry. For the Least Developed Countries (LDCs) whose trade competitiveness is relatively low, tourism plays a vital role, for it helps them to maintain the country’s Balance of Payments (BoPs) too. More than that through income and employment generation in respective economy and local communities it contributes to boost the higher economic growth and improve the standard of living of the people. Knowing the importance of the sector to the economy many researchers have come up with studies on this sector and concluded that tourism does have a positive impact on economic growth though the case was not always the same. Some studies could not show enough evidence to say tourism has significant effect on economic growth. In this research, the author has tested the Engle-Granger two step procedure in order to investigate the relationship between gross domestic product and foreign exchange earnings in the long run, adding worker remittances and export of goods and services as control variables. According to the result tourism has a significant impact on GDP of Nepal. Result also showed evidence that there is long run equilibrium relationship between the variables. Further, export also does have a significant impact. From two-step Engle Granger procedure positive Error correction term also has expected sign showing the validity of model. Based on the regression result, there is enough evidence to say that tourism earning has a significant impact on the GDP growth of Nepal.
Key Words: Gross Domestic Product, Total Foreign Exchange Earning from Tourism, Tourism Income multiplier, Inbound and Outbound tourism etc.
