Exploring the Nexus Between Geopolitical Risk, Economic Growth, and Inbound Tourism: An Empirical Study of India

Abstract

This study investigates the dynamic interplay between geopolitical risk, economic growth, and inbound tourism in India over the period 1990–2024. Drawing on the Tourism-Led Growth and Growth-Led Tourism hypotheses, the analysis integrates macroeconomic variables—exchange rate, inflation, and trade openness—alongside the Caldara–Iacoviello Geopolitical Risk index. Employing the Bayer–Hanck cointegration approach and an autoregressive distributed lag (ARDL) framework, the study examines both short-run and long-run relationships using annual data sourced from the World Bank, Reserve Bank of India, and other reputable databases. Empirical results reveal a significant long-run cointegrating relationship: heightened geopolitical risk exerts a negative effect on inbound tourism, while economic growth and exchange rate movements display positive influences. The error correction model indicates that deviations from long-run equilibrium are corrected at an annual speed of approximately 33%. Diagnostic tests confirm the model’s robustness, with no evidence of serial correlation, heteroskedasticity, or non-normality. The findings underscore the vulnerability of India’s tourism sector to geopolitical disturbances and highlight the importance of sustained economic expansion and currency stability to bolster tourism resilience. Policy implications include the need for targeted risk mitigation strategies, investment in tourism infrastructure, and flexible economic policymaking to safeguard and promote inbound tourism in the face of geopolitical uncertainty.