The Role of Monetary Factors in the Malaysian Tourism Industry: An ARDL Approach to Cointegration

Abstract

The purpose of this research is to investigate the impact of monetary factors in the Malaysian tourism sector. Monetary considerations are expected to greatly impact economic activity as they affect consumer spending decisions. This study examines the impact of monetary policy on the tourism sector in Malaysia through monetary aspects such as the bank lending rate, exchange rate, inflation and interest rate by employing an autoregressive distributed lag (ARDL) approach. The result shows that tourists are not concerned about their spending but consider the quality of a tourist destination. The interest rate was significant and it implies a negative relationship with tourism revenue which concurrence with economic theory. It also confirms that there is no evidence for a tourism-related crowding-out effect due to the changes in the interest rate. The monetary policy is not significant enough to influence the tourism revenue in Malaysia. There is a long-run relationship exists between the variables but does not play an important role in determining the long-run behavior of Malaysian tourism revenues. The study findings confirm that tourists are not strongly interested in monetary factors, but they may be concerned about other external factors that influence their decision to visit Malaysia.

Keywords: Tourism Revenue, Monetary Policy, Exchange Rate, Inflation, Interest Rate, ARDL Approach

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