GDP volatility implication of tourism volatility in South Africa: A time-varying approach

Abstract

The importance of tourism as one of the bedrocks of economic growth in South Africa suggests that volatility in the sector may have dire consequences. We therefore empirically analyse the impact of tourism volatility (TV) on the gross domestic product (GDP) volatility of the country, using time-varying approaches that treat the parameter estimations as functions of time, thereby overcoming the challenge posed by parameter instabilities, non-linearities, non-stationarity, regime shifts and time variations. We find that TV significantly aggravates GDP volatility (GDPV) in South Africa. The impact varies from year to year and is greatest during the periods characterized by economic turbulence and crime and violence against foreigners. The size of the coefficients has been on a steady increase over time, reflecting the growing importance of tourism and TV to the South African economy. We also find that TV is a significant predictor of GDPV in the country. We strongly recommend that policymakers pay serious attention to economic happenings around the world since TV is one of the channels through which global economic crises affect the South African economy. We also recommend that the minimization of crime and social disorder should form an essential component of tourism development and promotion strategy in South Africa.