The impact of tourism earnings on Kenya’s economic growth: 1995-2014
Mafta, Ramadhan Mohamed
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The Tourism Sector is second income earner in Kenya and provides employment to a large section of people along the tourism value-chain. However, the performance of the sector is prone to external and internal shocks such as terror attacks like those in 2012/13, post-election violence as in 2007/08 among others. Understanding the impact of the tourism sector on economic growth in Kenya is therefore important in designing policy to promote sector growth. This study investigated the impact of tourism on economic growth in Kenya for the period 1995 to 2014 with two specific objectives. Firstly, to examine the extent to which international tourism receipts impacts on Kenya’s economic growth. Secondly, is to establish the causal relationship between the international tourism receipts and economic growth in Kenya. The study used the Augmented Dickey-Fuller (ADF) procedure to test presence of unit roots which was corrected for by first differencing; Co-integration test which showed a long run relationship between the international tourism earnings and economic growth and an error correction model which concluded that there is a short run relationship between international tourism earnings and economic growth. Regression results showed that international tourism earnings, foreign direct investments, capital, inflation, real effective exchange rate and secondary enrolment (proxy for effective labour) have a positive impact on economic growth. Thus, an increase in international tourism has a positive effect on economic growth in Kenya. Based on this finding, the government should strengthen the tourism sector by; solving human-wildlife conflict, protecting the extinction of wild animals, which are the major tourist attractions in Kenya and increase budget allocation channeled towards the sector.