Desktop version

Home arrow Travel

  • Increase font
  • Decrease font

<<   CONTENTS   >>

Tourism marketing and capital investment

Economic contribution of tourism in Bangladesh: capital investment perspective

Mallika Roy, FAN Yajing and Bab to Biswas


Investment in the tourism industry implies the making of capital or products fit for producing different goods or services in the tourism industry for maximizing profits in the private sector or local revitalization and growth of the economy for public purposes. Tourism, as one of the most promising indicators of growth and development for the world economy, can play an important role in driving the transition to a high-income economy, and contributing to more GDP. Investment and financing arc inevitable parts of this. The possibilities are diversified and include both public and private investment. Strategic investors (SI), construction investors (CI) and financial investors (FI) are all tourism investors.

Thoroughly investigating all aspects of tourism development and economic growth is extremely important for all concerns (Leea and Chang, 2008). Though some qualitative analyses have been done in this context, there is no statistical or econometric analysis on the economic contribution of tourism in Bangladesh. In this context, this study is an attempt by the researchers to evaluate present trends and growth of the tourism industry which can contribute a lot to the economy of Bangladesh. By the end of this chapter, readers will be able to first, understand and find additional information on tourism trends in Bangladesh; second, become familiar with tourism investment trends and opportunities; third, become familiar with basic investment concepts and learn about their relation with GDP; fourth, understand the benefits of tourism investment. Investment trends influence the viability of a plan. Understanding this trend is the first step in identifying investment opportunities, quantifying market potential, determining the contribution of investment to GDP and assessing the feasibility of investment. To expand the tourism sector, tourism investment plays an important role. In this research, the trend of tourism investment and its impact on tourism revenue are discussed. The specific research objectives of this study are first, to know about the policies for tourism sector development in Bangladesh; second, to examine the impact of capital investment and revenue on tourism in Bangladesh; third and finally, to find out limitations and suggest some policy implications for the development of the tourism sector.

Literature review

A review of the existing literature shows that there have been no published studies in academic journals concerning the forecasting of tourism of Bangladesh. One of the reasons for this is that Bangladesh has not been regarded as a traditional and popular destination by Western or Asian tourists. Indeed many European and North Americans do not even know where Bangladesh is, let alone consider choosing Bangladesh as a holiday destination. Bangladesh is located in South Asia with a coastline of 580 km (360 miles) on the northern littoral of the Bay of Bengal. The delta plain of the Ganges (Padma), Brahmaputra (Jamuna) and Mcghna Rivers and their tributaries occupy 79% of the country. Four uplifted blocks (including the Madhupur and Barind Tracts in the centre and northwest) occupy 9%, and steep hill ranges up to approximately 1,000 metres (3,300 ft) high occupy 12% in the southeast (the Chittagong Hill Tracts) and in the northeast. Bangladesh is the world’s eighth most populous country with a population exceeding 167 million (United Nations, 2017).

Type of investors in the tourism industry

Strategic investors (SI)

Individuals or firms that invest resources into tourism industry improvement projects to gain the privilege to oversee them and take liability for running an organization. For example, tourism businesses and real estate developers specializing in planning and financing, brand possessors and so on.

Construction investors (CI)

Individuals or firm that invests into tourism industry advancement projects to take responsibility for the development.

Financial investors (FI)

Individuals or firms that invest capital into tourism industry improvement projects to get a dividend. For example, banks, insurance companies, private asset management companies, REITs (real estate investment trusts), PEF (private equity fund) and so on.

Patterns of economic growth, public and private gross capital formation in Bangladesh in terms of GDP growth rate

In the wake of enduring significant difficulties during the Liberation War and a log jam in growth, Bangladesh’s economy has quickened since the finish of the 1980s. The economy of Bangladesh saw an average of 4% growth or more per annum all through the 1990s. GDP growth rate in Bangladesh averaged 5.69% from 1994 until 2016, reaching an all-time high of 7.11% in 2016 and a record low of 4.08% in 1994 (Trading Economics, 2019).

Trend of GDP growth rate

Figure 13.1 Trend of GDP growth rate

Source: Trading Economics, 2019

The growth of GDP has been accelerating in each successive period since the early 1990s. Three components go into increasing growth. The two that have played roles since 1990 are physical capital and human capital, the latter estimated as far as the nature of the workforce and their aptitudes and skills level. In spite of the fact that labour expansion is significant as a growth source, it doesn’t clarify the growth variety crosswise over nations; driving the distinction crosswise over nations arc capital aggregation and profitability upgrades.

Investment-to-GDP ratio

The expansion in the investment-to-GDP ratio has been for the most part because of the dynamism in private investment, with investment in the public sector remaining practically unaltered as an extension of GDP. Both investment and saving rates have relentlessly improved, in this manner preparing for predominant growth performance. In the interim, because of powerful and continued growth in export income and the accompanying increment in imports, there has been a rapid growth in the trade openness of the economy (that is, the combined proportion of imports and exports to GDP).

Overall investment crossed 31% of GDP for the first time in Bangladesh’s history in fiscal 2017-2018, which was 30.51% the previous year, according to data from the Bangladesh Bureau of Statistics. The Bangladesh Bureau of Statistics (BBS) (2019) data showed the slow pace of growth in investment is mainly due to public investment: in fiscal 2017-2018, public investment to GDP was 7.97%. On the other hand, private investment was 23.26% of GDP, up from 23.10% in fiscal 2016-2017. For the last decade, the private investment-to-GDP ratio has been stuck at 21 to 23%.

Public/private investment-to-GDP ratio (in percentage)

Figure 13.2 Public/private investment-to-GDP ratio (in percentage)

Source: Bangladesh Bureau of Statistics, 2019

Growth experience of South Asian countries

The last two decades have seen reasonable economic growth in most South Asian countries. Toward the millennium’s end in the Development Goals period, Bangladesh outranked numerous other developing nations of a similar income level in poverty and human capital advancement statistics including its economically propelled neighbours, for example, India and Pakistan.

Figure 13.3 plots data on GDP growth rates of the South Asian countries over 1990-2017. Bangladesh has been growing around the South Asian average in terms of GDP growth rate. Barring a few years, it has been consistently above other regional competitors such as Pakistan. Figure 13.3 also shows that during 1990-2017,1990-2003 and 2004-2017, Bangladesh’s average GDP growth rate was 5.49, 4.7 and 6.16% while Pakistan’s figures over the respective periods were 4.14, 3.86 and 4.45% and South Asian averages were 6.27, 5.28 and 7.27%.

Investment assists in stimulating and restructuring economic activities tor accomplishing higher economic growth rates in all economies. Investments, being a part of aggregate demand as well as a source of capital accumulation, have been given a lot of significance in previous research pertaining to sector-wise growth, while the tourism sector has been given less consideration. Governments, as well as international development agencies, in developing or less developed countries (LDCs) have, tor many years, regarded the tourism sector as a main wellspring of employment and income generation. Holzner (2011) and Bran et al. (2007) found that countries dependent on tourism face higher than average economic growth rates. Solow (1956) states that poorer countries have higher than average economic growth rates. These two studies could be connected to my results, since I discovered that countries that are dependent on tourism are relatively poor.

As contended by Baum and Szivas (2008), the motivation behind legislative backing to the tourism industry is the capacity of this area to create employment and add to social and economic development. Investment activities can be made either by the public or private segment; furthermore, the results are generally

GDP growth rate of South Asian countries, 1990-2017

Figure 13.3 GDP growth rate of South Asian countries, 1990-2017

Source: World Bank, 2017

determined by the domestic social, political and economic structure. From the economic viewpoint, public investment is defended when the private segment fails to create a sufficient amount. Investment by the public sector decreases the risks to the private arena and guarantees profitability (Rosentraub and Joo, 2009).

In general, public investment improves both sectoral growth (for example, the tourism industry) and economic growth. Munnell (1992) declared that the profitable limit of a part or a territory can be extended by public capital investment, by improving the efficiency of current resources and including more resources also. In many developing countries, the role of public sector has been significant in the advancement of the tourism industry (Akama, 2002).

Other than the tourism industry strategy formulation and developing a national tourism plan, governments have been effectively occupied with the arrangement of the travel industry and cordiality offices and administrations. Given that the tourism industry is a profoundly divided sector that includes numerous stakeholders in the arrangement of different administrations, the prime role of governments in encouraging and advancing the industry through the provision of ideal socio-political and legitimate condition is of most extreme significance (Akama, 1997, 2002; Gunn, 1988; Hughes, 1994; Jenkins and Henry, 1982). Thus, in developing nations, the public sector is required to contribute effectively to tourism industry improvement, not just in the foundation of legislative systems and strategies, but also in the investment and management of the tourism sector.

Bran et al. (2007) explain the effects of tourism on countries through underlying mechanisms in their work. They expressed that allocation of labour is one of these mechanisms, hence when a country faces higher relative endowment of natural resources, it allocates more labor into the tourism sector and comparative advantage in tourism is obtained (Bran et al., 2007). According to them, the relative value of tourism services grows over time; hence average economy grows at a lower rate. They concluded that the underlying mechanism indicates tourism-led high steady-state growth of a sustainable nature. Instead of physical expansion, the growth is driven by increasing appreciation of tourism services (Brau et al., 2007).

Balalia and Petrescu (2011) asserted that the role of the state is focal in regulating and controlling the tourism activities and in certain circumstances, even encouraging it. In addition, he proclaimed that the public segment helps tourism industry development by improving infrastructure advancement, empowering private investment in hotel development, keeping up the standard of quality’ and securing tourists against any sort of instabilities or insecurities. The activities taken by the state to make the best conditions to animate the development of overall production has an immediate impact on the tourist industry too and government intervention is genuinely necessary in the tourism industry (Ribaric and Ribaric, 2013). In such manner, the state needs to deliberately' focus on investment to make favourable conditions for the betterment of tourism industry.

Bakan and Bosnic (2012), in a study on public-private partnerships in sustainable tourism development in Croatia, claimed that the low size of investment in tourist infrastructure is an important factor responsible for the slow pace of tourism development. Empirical evidence also proposes that small islands, for example, Zanzibar in Tanzania, where the legislature has not been effectively engaged with direct investment, other than policy’ formulation and monitoring. The government has not developed any policies related to investment (Sharpley and Telfer, 2014).



This chapter uses both qualitative and quantitative methods to fulfil the objective. The chapter firstly introduces the current situation and existing problems of tourism investment in Bangladesh. Second, we employ time series models to predict the trend of tourism investment in the future. Third, in order to promote the growth of tourism revenue in Bangladesh, it is necessary’ to analyse the relationship between tourism investment and tourism revenue. This research selects capital investment as the tourism investment index and international tourism receipts as the tourism revenue growth index. Through the correlation analysis method, the correlation degree between each input index and total tourism revenue in Bangladesh is analysed. Based on the correlational analysis, this chapter also analyses the impact of tourism investment on tourism revenue by’ constructing vector autoregressive (VAR) model.


Since our research focuses on the total contribution of travel and tourism to GDP, capital investment on travel and tourism, and international tourism receipts, and all those variables are included in the model. To account for the

Economic contribution of tourism 229 direct and indirect impact of capital investment on travel and tourism and international tourism receipts on the total contribution of travel and tourism to GDP, we use the VAR model, an equation system in which all variables are treated as endogenous and variables at the current time point are regressed against lagged values of all the variables in the system. It enables us to consider the complex relationship among all variables, with particular emphasis on the total contribution of travel and tourism to GDP (Seetanah et al., 2011). The VAR model can be written as follows:

Y is a vector including all interested variables in the study (i.e. the total contribution to GDP of travel and tourism investment and international tourism receipts in our research). U is a vector of regression errors that are assumed to be contemporaneously correlated but not autocorrelated. If a VAR model has m equations, there will be m + coefficients that need to be estimated where p is lag length of variables in each equation. Over-parameterizing may occur when p is too large but the information is not enough because degrees of freedom run out. However, if p is too small, the model cannot represent correctly the data-generating process (Song and Witt, 2006). In the current research, we have 2 variables and 23 observations so the maximum value of p is 4. Then we use Akaike information criterion (AIC) to determine the lag length of the VAR model.

Impulse response analysis

One advantage of this approach is that an impulse response analysis can be carried out, which can provide useful information for policymaking purposes (Song and Witt, 2006). By repeatedly substituting the lagged variables into themselves based on equation (1), the vector moving average (VMA) process is obtained:

The elements of FIj represent the effects of unit shocks in the variables of the system after i periods. They are called impulse responses or dynamic multipliers. Introducing forecast error term, we have the impulse-responds function:

It represents the response of Y, [+n to a one-time impulse from T;, with all other variables dated to t or earlier held constant. The response of variable i to a unit shock (forecast error) in variable j will be depicted graphically to get a visual impression of the dynamic inter-relationships within the system.

Through empirical results and recommendations, the main objective of this study is to improve the understanding of the impact of investment on economicgrowth and point to policy measures aimed at further strengthening economic growth in Bangladesh. In this regard, the study analysed the impact of investment on economic growth in Bangladesh. The methodology adopted is ARIMA model selection, VAR model and orthogonal impulse response analysis.

Empirical results

In an attempt to study the trend of tourism investment and its impact on tourism development, our study makes use of data from Bangladesh over a period of 23 years (1995-2017). We collected the data of the total contribution of travel and tourism to GDP and travel and tourism investment from world travel and tourism councils instead of the direct contribution of travel and tourism. The total contribution of travel and tourism includes its “wider impacts” (i.e. the indirect and induced impacts on the economy) (World Travel & Tourism Council, 2018). In addition, we collected complementary data of international tourism receipts from World Bank.

From Figure 13.4, we can see that the total contribution of travel and tourism to GDP kept increasing during 1995-2017. Figure 13.4 also shows that the total contribution of travel and tourism to GDP grew to over US$10.62bn in 2017, an increase of US$0.81bn (8.23%) over the previous year. International tourism receipts experienced a year-on-year average growth rate of 6.15% from 1995 to 2017. Moreover, in recent years, international tourism receipts show an

Trend of tourism investment, international tourism receipts and contribution to GDP (US$ in billions)

Figure 13.4 Trend of tourism investment, international tourism receipts and contribution to GDP (US$ in billions)

Source: World Travel & Tourism Council (2018)

Economie contribution of tourism 231 increasing growth rate, around 10.83% from 2012 to 2017. Travel and tourism investment decreased from 2012 to 2014 and then grew rapidly with growth rate of 30.72%.

Modelling trends using univariate time series models

It is straightforward to generate the forecasts for all three indicators by the univariate time series model first. We select the optimal model for each indicator based on AIC as presented in Table 13.1. The forecast results are presented in Table 11.3 and Figures 13.5-13.7.

Table 13.1 ARIMA model selection




Total contribution to GDP



ARI MA( 1,2,0)


ARI MA( 0,2,1)


ARI MA( 1,2,1)





ARI MA( 1,3,0)




ARI MA( 1,3,1)


International tourism receipts



ARI MA( 1,3,0)


ARIMA(0,3,I )


ARI MA( 1,3,1)


Table 13.2 Forecast results (US$ in billions)





Lo 80

Hi 80

Lo 95

Hi 95

Total contribution to GDP































Travel and tourism investment































International tourism receipts































Forecast of contribution to GDP

Figure 13.5 Forecast of contribution to GDP

Forecast of travel and tourism investment

Figure 13.6 Forecast of travel and tourism investment

Forecast of international tourism receipts

Figure 13.7 Forecast of international tourism receipts

The total contribution of travel and tourism to GDP, including employment by hotels, travel agents, airlines and other passenger transportation services also includes, for example, the activities of the restaurant and leisure industries directly supported by tourists. This value was US$10.61bn in 2017 (4.3% of GDP) and is expected to grow by 25.54% to US$13.33bn in 2022, with travel and tourism investment reaching US$1.62bn and international tourism receipts US$1.55bn. Columns 4-5 show the 80% confidence intervals and columns 6-7 show the 95% confidence intervals. For example, 80% of the time, when we calculate a confidence interval in this way, the true value of the total contribution of travel and tourism to GDP will be between US$11.18bn and US$15.49bn.

Modelling trends using VAR

In this section, the VAR model is used to study the relationship among contribution of tourism to GDP, travel and tourism investment and international tourism receipts. The estimation of the VAR models generated a large number of parameters, as three equations were estimated in total. As the limitation of our sample size, maximum order of lag is four, so we select the optimal model based on AIC as shown in Table 13.3. The estimation results of the VAR models are omitted as the focus of this chapter is the contribution of investment to tourism development. We just present the graph of the responses of the total contribution of travel and tourism to GDP, international tourism receipts and tourism investment here.

These figures demonstrate the impulse response relationships among all three variables. The X-axis represents the number of lag or years and the Y-axis is the magnitude of the shock. The second graph in first column presents the impulse response of travel and tourism investment to the total contribution of travel and tourism to GDP. At the initial period, the shock will be negative and not obvious. It means that an investment shock leads to a drop in contribution of tourism to GDP in the short term. The plot also illustrates that, as time passes, the effects of a positive shock on the contribution to GDP increases. Similarly, international tourism receipts have a positive impact on the total contribution of travel and tourism to GDP after around three years.

Table 13.3 VAR model selection











Orthogonal impulse response

Figure 13.8 Orthogonal impulse response


The fundamental conclusion of this chapter identifies the important role economic policy has in impacting economic growth, principally when developing nations are the concern. In view of forecasting results, contribution to GDP, travel and tourism investment and international tourism receipts are trending

Economic contribution of tourism 235 upwards. To improve conditions further, Bangladesh should focus on the sectors discussed next.

The aftereffects of the study have helpfill ramifications for Bangladesh. One significant proposal to help economic growth in Bangladesh is to put more accentuation on private investment. Consequently, the Bangladesh government must place emphasis on this variable to improve and animate economic growth in Bangladesh. One of the approaches to accomplish this strategy objective is to make more wealth or to create more employment opportunities.

There are certain restricting limitations - land, energy, trade logistics and access to long-term financing, skills and regulatory complexity as well as unpredictability -that make it extremely difficult for existing and potential entrepreneurs to start businesses or go into new zones of business. Bangladesh needs to establish special economic zones, liquefied natural gas terminals, base-load power plants and one-stop shops as well as upgrade ports. Then private investment will surely break out from 21-23% of GDP. '

One of the significant drivers of growth in a developing economy like Bangladesh is total factor productivity. Cross-country analyses find that highly developed economies are driven both by growth in their raw materials as well as continued growth in their productivity. The intriguing part of this conclusion isn’t that productivity growth must be incredibly high, simply sustained over a long period. In spite of the ongoing expanding pattern in total factor productivity in Bangladesh, the contribution of productivity growth to the overall growth of the economy is low, and that growth has been input-driven as opposed to productivity driven. When taking a gander at the total factor productivity development encounters of different nations, one finds that variables, for example, human capital advancement, physical capital improvement (including infrastructure), financial development, technology absorption and openness (particularly in terms of openness to imports) have a critical effect of growth in total factor productivity. Until the country focuses on these issues, it will be difficult for Bangladesh to accomplish supportable development. Upgrade productivity could be another viable policy target to quicken future economic growth.

One of the basic questions that emerges over all economies is what amount of economic growth is brought about by development in physical and human capital and what amount is brought about by other factors, for example, innovation and institutional change. In spite of the fact that there is discussion about the positive effects of expanded physical and human capital on development, most economists feel that sustainable growth is reliant on continued innovative and institutional development.

Among private sector investments, the manufacturing sector has been a significant driver of GDP growth in Bangladesh. Sustainable dynamism in manufacturing would be significant for Bangladesh’s transition to middle-income status. To release the maximum capacity of the manufacturing division and to accomplish more prominent broadening, it would be important that the intensity of Bangladeshi manufacturing segment be reinforced impressively.

The general significance of tradable and non-tradable segments, in spite of changes because of basic movements, are to such an extent that still the nontradable areas like services, development, small-scale industry and other demand-driven exercises arc significant supporters of economic growth in Bangladesh. This proposes future growth policies in the nation, at least in the medium term, ought to at the same time centre around quickening the development of both tradable and non-tradable areas as opposed to concentrating only on tradable areas to drive development.


Tourism is a big sub-sector of the national economy. Without maintaining proper strategies in the sector, it may lag behind in making its potential contribution to the national economy. This chapter focused on the economic contribution of tourism and also shows the way for further improvement. Having reviewed the available literature, both theoretical and empirical and having the results, it is evident that the effect of investment on tourism growth is not negligible. A careful examination of the existing research shows that research on the effect of private and public investment on tourism in Bangladesh is still inadequate and needs more attention. Moreover, the study of the collaborative impact of public and private investment on tourism growth has, so far, received less attention. Therefore, in order to fill the aforementioned gaps in the literature, future research addressing tourism sector growth from the perspective of public and private investment is needed in general.


Akama, J. S. (1997). Tourism development in Kenya: Problems and policy alternatives. Progress in Tourism and Hospitality Research, 3(2), pp. 95-105.

Akama, J. S. (2002). The role of government in the development of tourism in Kenya. International Journal of Tourism Research, 4(1), pp. 1-14.

Bakan, R. and Bosnic, I. (2012). Public-private partnership: A model for sustainable tourism development in Regional park Mura-Drava - the possibility of tourist valorisation of abandoned army barracks. Economy of Eastern Croatia Yesterday, Today, Tomorrow, 1, pp. 201-206.

Balalia, A. E. and Petrescu, R. M. (2011). The involvement of the public and private sector - elements with influence on travel 8c tourism demand during the crisis period. Tourism and Hospitality Management, 17(2), pp. 217-230.

Bangladesh Bureau of Statistics (2019). Public/private investment to GDP ratio. Dhaka: BBS.

Baum, T. and Szivas, E. (2008). HRD in tourism: A role for government? Tourism Management, 29(4), pp. 783-794.

Bran, R., Lanza, A. and Pigliaru, F. (2007). How fast arc small tourism countries growing? The 1980-2003 evidence. Retrieved from: (accessed: the 22nd December 2019).

Gunn, C. A. (1988). Tourism planning.

Holzner, M. (2011). Tourism and economic development: The beach disease? Tourism Management, 32(4), pp. 922-933.

Hughes, H. L. (1994). Tourism multiplier studies: A more judicious approach. Tourism Management, 15(6), pp. 403-406.

Jenkins, C. L. and Henry, B. ( 1982). Government involvement in tourism in developing countries. Annals of Tourism Research, 9(4), pp. 499-521.

Leea, С. C. and Chang, С. P. (2008). Tourism development and economic growth: A closer look at panels. Tourism Management, 29, pp. 180-192.

Munnell, A. H. (1992). Policy watch: Infrastructure investment and economic growth. The Journal of Economic Perspectives, 6(4), pp. 189-198.

Ribaric, H. M. and Ribaric, I. (2013). Government intervention in driving the development of sustainable tourism. Retrieved from: Makarin_Ribari_Hclga_Ribari_Ivana.pdf (accessed: the 22nd December 2019).

Rosentraub, M. S. and Joo, M. (2009). Tourism and economic development: Which investments produce gains for regions? Tourism Management, 30(5), pp. 759-770.

Sectanah, B., Padachi, K. and Rojid, S. (2011). Tourism and economic growth: African evidence from panel vector autoregressive framework. In A. K. Fosu (cd.), Growth and institutions in African development. Oxon: Routledge, pp. 145-158.

Sharplcy, R. and Telfer, D. J. (2014). Tourism and development: Concepts and issues. Bristol: Channel View Publications.

Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), pp. 65-94.

Song, H. and Witt, S. F. (2006). Forecasting international tourist flows to Macau. Tourism Management, 27(2), pp. 214-224.

Trading Economics (2019). Bangladesh GDP growth rate. Retrieved from: https:// (accessed: the 22nd December 2019).

United Nations (2017). World population prospects. Retrieved from: https://population. (accessed: the 22nd December 2019).

World Bank (2017). GDP growth rate of South Asian countries, 1990-2017. Manila: WB.

World Travel & Tourism Council (2018). World travel & tourism council report-2018. London: WTTC.

<<   CONTENTS   >>

Related topics