TESTING THE TOURISM-LED GROWTH HYPOTHESIS: THE CASE OF MALTA S. T. KATIRCIOGLU (Received: 25 November 2008; revision received: 28 January 2009; accepted: 7 July 2009) Tourism-Led Growth (TLG) hypothesis results are inconclusive for Mediterranean countries in the relevant literature. This study contributes to the literature by employing the bounds test for co-inte- gration and Granger causality tests to investigate level relationship and the direction of causality be- tween international tourism and economic growth in the case of Malta. Results reveal that a long-run equilibrium relationship exists between international tourism and economic growth in the case of Malta. On the other hand, Granger causality test results suggest that both the Tourism-Led Growth and output-driven tourism hypotheses can be inferred for Malta since there is bidirectional causation between international tourism and economic growth. Keywords: bounds test, Granger causality, tourism, economic growth, Malta Jel classification index: C22; C51; O41; O52. 1. INTRODUCTION The relationship between economic growth and international tourism has long been the subject of interest and empirically investigated in the export-led (i.e. tourism-led) growth literature. The effects of international tourism on developing countries have also long been the subject of interest to both scholars and policy- makers (Clancy 1999). International tourism and international trade are two major sources of foreign exchange for small countries as well as larger ones. There is a 0001-6373/$20.00 © 2009 Akadémiai Kiadó, Budapest Acta Oeconomica, Vol. 59 (3) pp. 331–343 (2009) DOI: 10.1556/AOecon.59.2009.3.4 Corresponding address: S. T. Katircioglu, Department of Banking and Finance, Eastern Mediterra- nean University, P.O. Box 95, Famagusta, Northern Cyprus, Via Mersin 10, Turkey. E-mail: salihk@emu.edu.tr