International Business & Economics Research Journal – May 2012 Volume 11, Number 5 © 2012 The Clute Institute 517 Tourism And Economic Growth In Kenya: An Empirical Investigation Obadiah N. Kibara, University of South Africa, South Africa Nicholas M. Odhiambo, University of South Africa, South Africa Josephine M. Njuguna, University of South Africa, South Africa ABSTRACT In this study, we examine the dynamic relationship between tourism sector development and economic growth – using annual time-series data from Kenya. The study attempts to answer one critical question - “Is tourism development in Kenya pro-growth?” The study uses an ARDL- bounds testing approach to examine these linkages and also incorporates trade as an intermittent variable between tourism development and economic growth in a multivariate setting. The results of our study show that there is a uni-directional causality from tourism development to economic growth. The results are found to hold irrespective of whether the causality is estimated in the short run and long run. Other results show that international tourism Granger-causes trade, while trade Granger-causes economic growth in Kenya in both the short and the long run. Keywords: Kenya; Tourism Development; Economic Growth INTRODUCTION he relationship between tourism development and economic growth has attracted numerous studies in recent years. Studies have shown that development of the tourism sector stimulates economic growth both at the national and local levels. It promotes the growth of agricultural, industrial and service sectors (Yamakawa, 2007). As a labour-intensive industry, tourism provides a wide range of employment, thereby improving the welfare of the nationals. According to Croes and Vanegas (2008), the role of tourism development can be linked to Vanegas and Croes (2003, 2004) called “the democratization of the dollar”. According to Vanegas and Croes (2003, 2004), tourism development leads to the transfer of wealth and income from residents of developed and developing countries to residents of developing and least developed countries, thereby leading to mass generation of employment opportunities and ample participation for all sectors of the economy which, in the end, increases income of developing countries as well as the standard of living (Croes and Vanegas, 2008). Although a number of studies have been conducted to examine the relationship between tourism development and economic growth, there has been no unanimous agreement on the direction of causality between these two important economic variables. While some studies argue that it is the growth of the tourism sector that causes economic growth, others argue that it is the real sector development that leads to the invasion sector development. Between these two extremes, there are those who posit that these sectors Granger-cause each other. Using novel empirical techniques in this study, we examine the dynamic causal relationship between international tourism development and economic growth in Kenya. The study attempts to answer one critical question – “Does the development of the tourism sector in Kenya lead to economic growth?” T