Does Climate Change Moderate the Tourism–Growth Nexus? Panel Evidence from Pakistan's Provinces

Abstract

Aim of the Study: This study investigates how climate change influences provincial economic growth in Pakistan via international tourism, using annual data for 2009–2021 across Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan. It examines the direct effect of climate change on growth, the positive contribution of international tourist arrivals to economic output, and whether climate stress weakens tourism’s growth dividend through a climate–tourism interaction term.

Methodology: Climate change is proxied by mean annual temperature and precipitation; international tourist arrivals measure tourism activity. The analysis applies a sequential second‑generation panel approach: Pesaran (2004) cross‑sectional dependence test, Pesaran–Yamagata (2008) slope homogeneity test, CIPS and CADF panel unit‑root tests, Westerlund, Pedroni and Kao cointegration tests, FMOLS and DOLS long‑run estimators, and the Dumitrescu–Hurlin (2012) heterogeneous panel causality test. A conditional effect is tested via an interaction term (lnIT × CC).

Findings: All variables are I(1) and exhibit a stable long‑run cointegrating relationship. FMOLS and DOLS estimates consistently show a significant negative direct effect of climate change on provincial GDP and a significant positive impact from international tourist arrivals. The interaction term is negative and statistically significant (FMOLS: −0.015, p < 0.01; DOLS: −0.020, p < 0.05), indicating that climatic stress attenuates tourism’s positive contribution to growth. Dumitrescu–Hurlin tests indicate bidirectional causality between tourism and economic growth.

Conclusion: Tourism‑led growth in Pakistan is vulnerable to climatic deterioration; sustaining tourism’s macroeconomic benefits requires integrating climate adaptation into tourism policy, investing in resilient infrastructure, and coordinating provincial climate–tourism governance to protect long‑run economic prospects.