Application of Co-integration and Causality Analysis for Expenditure of International Tourists’ Arrival in Nepal

This study examines long run and short run causality of average expenditure of tourists by analyzing their length of stay and number of international visitors’ arrivals in Nepal by using co-integrating and causality analysis. The study has used annual tourism data of Nepal from the period of 1991 to 2014 provided by Ministry of Tourism and Civil Aviation. The co-integration analysis indicates that there is long run relationship among average expenditure per visitor, their length of stay and number of international tourist arrivals in Nepal. The result of vector error correction model indicates that coefficient of tourists’ expenditure elasticity with respect to average length of stay is more elastic as compared to coefficient of tourists’ expenditure elasticity with respect to number of international tourists’ arrival in Nepal. The results of Granger causality analysis, on the other hand, have depicted that there exists bidirectional causal relationship between expenditure per visitor and their average length of stay and unidirectional causality exists from average length of stay to number of international tourist.