Granger Causality Analysis on Indonesia and Malaysia Business Sectors

Tourism and export are important business sectors for economic growth, and plays important roles in developing countries such as Indonesia and Malaysia. To examine the causality among tourism, using international tourist arrivals (ITA) as a proxy, export, and economic growth, using real GDP as a proxy, Johansen's cointegration test and Granger causality have been employed. The relationship among tourism, export, and economic growth is essential to policy development in developing countries. By using annual data from 1980 to 2010, for Indonesia's time series, results show that bidirectional Granger causality runs between tourism and export. While, a unidirectional Granger causality runs from GDP to export as well as from GDP to tourism. Meanwhile, for Malaysia's time series, results show that there is no Granger causality between variables. However, neither export-led growth hypothesis nor tourism-led hypothesis is supported for both Indonesia's and Malaysia's time series.