Tourism is critical to the development of many economies worldwide. Tourism contributes to the growth of a country in two ways: primarily by bringing in a variety of economic values and advanteges and secondly by supporting in the development of the country's brand value, reputation, and identification. Tourism has been the subject of extensive research for many years. The significance of the tourism sector globally has been granted many various studies. Unfortunately, there has been inadequate research on this topic in the context of Saudi Arabia.
Saudi Arabia declared in December 2013 that it would offer tourist visas for the first time in the country's history. However, on September 27, 2019, Saudi Arabia formally started the issuance of tourist visas to visitors from 49 countries. A decade back, the Kingdom of Saudi Arabia (KSA) was not perceived to be a joint tourism destination, with the exception of religious purposes (Hajj and Umrah). The two holy cities of Makkah and Medina play a significant role in Saudi Arabia's non-oil economy because of their significance in the Muslim world and the millions of pilgrims they attract. Every year, the Hajj and Umrah pilgrimages are carried out, bringing in about $12 billion in revenue from the worshippers' fees, food, transportation, and lodging.
The economy of Saudi Arabia functions as an oil state, and the country plays a significant role in OPEC. The Saudi government launched its Saudi Vision 2030 plan in 2016 in order to reduce the country's reliance on oil and diversify its economic resources. This plan's objectives include developing the Saudi private sector to build a thriving society; diversifying the economy to create economic prosperity; and making investments to position Saudi Arabia for international trade and competition.The key to achieving much of this vision is tourism. Furthermore, in recent years, the KSA government has been proactive in developing new goals, adjusting longestablished policies, focusing on tourism and hospitality education, and revamping its image in order to attract domestic and international tourists.
The objectives of this study are to determine the long-run and the short-run relationships among GDP and independent variables, including tourism receipts, the number of international tourist arrivals, and the nominal exchange rate, using annual time series data from 1970 to 2019. Unit roots, Johansen co-integration, VAR and VAR-ECM, Impulse Response, and Variance Decomposition are among the econometric approaches used in the study.
ADF, PP, and KPSS statistics of Kwiatkowski, Phillips, and Schmidt were employed for unit root tests. Since the variables are not stationary, the Johansen Co-integration approach was applied. Based on the findings, we may conclude that all variables are nonlinearly integrated of order '1'. In the unit in-level test, the null hypothesis of non-stationarity is rejected for all variables; hence, all the variables are stationary in the first difference.
According to the Johansen Co-integration test results, where the trace statistics indicate one cointegration equation at a 5% confidence, there is at least one cointegration vector among LGDP, LINTR, LTR, and LEXR. Therefore, it is said that the variables are integrated, and there is a longrun equilibrium relationship among them.
After running the regression analysis, the results obtained showed that there is a unidirectional relationship between the number of international tourist arrivals and GDP. Another unidirectional relationship exists between tourism receipts and GDP. Tourism receipts and the number of international tourist arrivals have a bidirectional relationship. However, the exchange rate and the number of international tourist arrivals do not Granger cause each other. The same goes for the exchange rate, and tourism receipts meaning relationships do not exist between them.
The VAR-ECM model findings state that a change in tourism receipts affects the change in the GDP positively; however, a change in the number of international tourist arrivals affects the changes in GDP negatively. Meaning that only tourism receipts are significant and positively related to economic growth.
Therefore, the empirical results validate the concept that tourism promotes economic growth in the kingdom of Saudi Arabia.
Aside from enhancing current knowledge, the findings also recommended to policymakers that the tourism industry be improved and sustained to generate better economic growth.