TOURISM, EXCHANGE RATE, AND ECONOMIC GROWTH IN PAKISTAN: A TIME-SERIES ANALYSIS

Abstract

This study examined the relationship between tourism and economic growth in Pakistan by focusing on tourism receipts, tourism investment, and the mediating role of exchange rate. Annual time-series data covering 1995–2023 were used, providing 29 observations. Economic growth was measured through GDP growth, tourism receipts through international tourism earnings, tourism investment through foreign direct investment net inflows as a proxy, and exchange rate through the official Pakistani rupee–US dollar rate. Descriptive statistics, correlation analysis, multiple regression, mediation analysis, and diagnostic tests were performed using SPSS. The findings showed that GDP growth averaged 3.91%, tourism receipts averaged US$822.16 million, tourism investment averaged US$1.80 billion, and the exchange rate averaged PKR92.75 per US dollar during the study period. Tourism receipts had a weak negative relationship with economic growth, while tourism investment had an almost negligible positive relationship. Tourism receipts were significantly associated with tourism investment and exchange rate. The regression model explained 11.9% of the variation in GDP growth but was statistically insignificant, F(3, 25) = 1.131, p = .356. Tourism receipts, tourism investment, and exchange rate did not significantly predict economic growth. Mediation analysis showed that tourism receipts significantly affected exchange rate, but exchange rate did not significantly affect economic growth. Therefore, exchange rate did not mediate the relationship between the tourism variables and economic growth. The study concludes that tourism remained economically relevant for Pakistan, particularly through its association with external-sector conditions, but its direct contribution to GDP growth was not statistically supported within the selected model and period.