This study is to look out at the
economic effects of medical tourism toward economic growth as the case study of
Malaysia. The independent variables are tourist arrival, foreign patients and
health expenditure while economic growth act as the dependent variable. The
relationship between these variables will be tested for statistically
significant. Plus, this chapter contains three elements which include
theoretical framework, overall testing procedures and empirical findings in
previous researches either locally or international research.
2.1 THEORETICAL FRAMEWORK
Former studies have been proficient
assistance for this research which they act as an indicator and model for this
research on medical tourism and economic growth. This tourism-based research is
common but by adding up medical variable to relate it to economic growth is
something new. Most researcher used theory such as Tourism-led Growth (TLG)
theory to look out for the relationship between both variables.
2.1.1 Tourism-led Growth
Economic growth is known as one of
the most vital areas of studies these days. There were numbers of empirical
work have been done by previous researcher to find the validity of this TLG
hypothesis. This research has been done for both developed and developing
countries to find any distinct relationship between both of them. Plus, according to previous researhers, they
found that tourism expansion does not come from economic growth but they were
likely to support the TLG hypothesis. This evidence came from Oh (2005) in
research for South Korea find out there were unidirectional causality of
economic driven tourism growth, Kartircioglu (2009) for Turkey which support
the TLG hypothesis where there were unidirectional from tourism to economic
growth and Tang (2011) for Malaysia which showed that not all international
tourism can granger- cause economic growth.
To measure the relationship between
tourism and economic growth, usually data of tourist arrival and tourism
revenue will be used as the measurement. TLG is the most appropriate theory to
understand the relationship of both variables. Plus, it has been proved that
tourism can also lead to the growth of other sector such service sector,
transportation and hospitality sector.
2.2 EMPIRICAL FINDINGS
2.2.1 Tourist Arrival
Tourist arrival has always been the
determinant to measure the relationship between tourism and economic growth of
a particular country Lean et. al (2014).
According to Lee (2009),
Chaovanapoonphoi (2010),Nikalaos (2012), Wang et al (2012), Cheah et al.
(2014) and so on. Tourist arrival can be divided into domestic tourist arrival
and international tourist arrival.
Chew (2009) studies the relationship
between healthcare and international tourism in Singapore. Data of total
tourist arrival is used as the proxy for international tourism. This research
is particularly investigate the interaction of short run and long run dynamic
between health care and international tourism by using cointegration and
Granger causality test. It resulted in the existence of unidirectional
causality between healthcare to international tourism in long run while in short
run there is no causality. This reflected that healthcare has positive effects
on international tourism and with that the Singaporean government has
entrenched itself as a top medical hub to attract more international tourist.
Furthermore, Cheah et al. (2014)
studies the relationship between tourist arrival and government healthcare
spending which took place in Malaysia. the studies resulted in tourist arrival
giving negative impact on government healthcare spending which it is contradict
with Lee and Hung (2010) research where they found positive impact between
both. The explanation to this result is that we Malaysia have one policy that
when the number of tourist arrival coming for healthcare basis increase,
government will reduce its role so that private sector can increase its quality
of healthcare services. Plus, the study by Lee and Hung (2010) took place in
Singapore, a developed country and might have different policy than Malaysia.
So, government should maintained the development of economic and tourism sector
to increase the development of health sector.
Another researcher, Dritsakis (2012)
studies the long-run relationship between real GDP, tourist receipt,
international tourist arrival and real effective exchange rate of seven
Mediterranean countries. This study use a panel data approach, annual data from
1980 to 2007. This study uses fully modified OLS (FMOLS), panel unit root test
and panel cointegration test. The result shows tourist receipts, real exchange
rate has positive impact on GDP. Moreover, it says real exchange rate has the
common scale impact on GDP where the higher the exchange rate, foreign exchange
tourism receipts will be higher too. So, based on panel cointegration , there
is solid evidence between tourism development and GDP in the case of seven
Mediterranean countries while FMOLS indicate the high impact of tourist arrival
and receipts on economic growth.
Yaovarate et al. (2010) this
research uses panel data to investigate the impact of CPI towards tourism
demand of Malaysia, USA and Japan to Thailand.
Overally, each country uses different amount of data due to the
limitation of monthly CPI data. In this research ARIMA and seasonal ARIMAX
model is the best model to measure tourist arrival of the three countries.
Through the model, it shows that it is important to use CPI to find out the
tourist arrival to Thailand. Furthermore, the higher the CPI, the lower the
demand of tourist to Thailand. The CPI of Japan and Malaysia does not effects
the demand of tourist to Thailand because both are known as short and medium
haul country as travelling to Thailand does not require expenditure unlike USA.
2.2.2 Foreign Patients
Foreign patients are international
tourists who come across border for the purpose of getting treatment. Foreign
patients can also be known as medical tourist as both have the same desire of
going for holiday while getting medical treatment. For Malaysia, factors
foreign patients to choose coming there are because of its low cost, high
quality of service and facilities and also because of the tourist attraction.
Johor, Penang and Selangor are some places which known as the popular place for
According to Chee (2010) studies the
medical tourism and its state in Malaysia and Singapore. In her studies, it says
about foreign patients for both Malaysia and Singapore. It shows that Malaysia
has 5 years consecutive of growth for foreign patients. Also, it can be said
that the nature of medical tourist is regional as many of them came from
Jeroen et al (2016) studies the
impacts of state-level analysis of the economy toward medical tourism in
Malaysia. this studies included nine state-level of foreign patients data in
Malaysia which can be divided into outpatient and inpatients. This studies uses
I-O (input-output) model analysis to calculate impacts of economic caused by
final demand by medical tourist and gives detail explanation by showing
separate impacts for each sector and state. So, this studies find out that more
attention should be given to real and potential implication of the high ratio
of outpatients to inpatient for the development of Malaysia.
Next is the research by Snyder et al
(2016) who studied the medical tourism in two countries, Guatemala and
Barbados. They studied the different perspective of international patients
towards the emerging sectors. Using qualitative method of interviews 100
stakeholders between May 2013 and February 2014, there could identified two
groups of international patients; international patients with readily
accessible and international patients with no existing ties to the region. The
study found out that international patients with readily accessible give less
impact toward the economic because tend to stay at relatives house that at
hotel. Both Guatemala and Barbados country has always relied on patients by
neighbouring countries to support their medical tourism. Both also found their
own comparative advantage where Barbados has high English speaking population
and Guatemala on its large diaspora population to attract more international
Other than that, a research by Ahmad
et al (2017) which studied the determinant of foreign patients loyalty in
medical tourism industry. The findings showed that service quality, customer
satisfaction, perceived value and trust has positively significant towards
foreign patients loyalty. Meaning that, to remain and attract more foreign
patients, government should provide good service quality and facilities. Plus,
with more foreign patients, the medical tourism industry will soaring.
Abdullah, S (2013) studied the
various factors that can contribute to the development of medical tourism in
Malaysia. This study is a quantitative study and he used Structural Equation
Model (SEM) for the data analysis. This study targeted medical tourist coming
to Malaysia for medical and sightseeing purpose and has collected 266 sample
size from December 2012 to February 2013. This study accepted its hypothesis 1
(H1) and hypothesis 2(H2) saying that destination competitiveness and service
plays an important role in influencing the medical tourist decision. But this
study rejected the hypothesis 3 (H3) saying that customer service does not
influence the medical tourist’s choice. So, from this result, we can concluded
that Malaysia is one of the competitive destination which has been chose by the
2.2.3 Health Expenditure
Health expenditure is important to
measure the amount of money allocate for the sector. Health expenditure can be
divided into public and private health expenditure. For medical tourism, most
of the expenditure is in term of private sector because in Malaysia, government
had allocate an amount for the private sector to promote and upgrade the
quality of its services for the sake of economic growth.
According to Badamassi et al. (2017),
the study focused on health expenditure impact
to economic growth. The research took place in 36 Sub-Saharan African countries
and is a panel data analysis. This studies resulted in a positive effect between
both health expenditure and economic growth variable. Both were also
statiscally significant. Based on the result stated, healthcare expenditure is
important and is known as basic necessity rather than a luxury goods. So the
performance of healthcare expenditure either increase or decrease will effect
the movement of economic growth which policymaker should consider.
Plus, a research by Piabuo et al.
(2017) also found that there is positive impact between health expenditure and
economic growth between 6 CEMAC member states and 5 Sub-Saharan African
countries. Even though both are positive but countries which agreed with Abuja
agreement gain higher growth than CEMAC countries. Both types of countries also
have the existence of long-run relationship. CEMAC countries have
bi-directional causality between economic growth to health expenditure while
only unilateral causality for Abuja from same direction. So, Abuja declaration
countries gain higher economic growth when there is increase in health
expenditure which explain the importance of having Abuja declaration.
While most researcher use Granger
causality test, this research by Anne et al. (2016) used Toda Yamamoto. The
test revealed that there is no direct effect of government health expenditure
towards economic growth. It indirectly effect by using mortality and life
expectancy data to determine health outcome. So, apparently government should
also take note on the mortality and life expectancy rate to determine the
relationship between health expenditure and economic growth.
Tang (2010) studies the determinant
of health expenditure by using cointegration, causality and variance
decomposition analyses. Based on cointegration test, income and POP65 has
positive relationship with health expenditure in the long run. While, price has
negative relationship with health expenditure. This empirical finding explain
that as income and older population increase, there will be high tendencies to
increase the spending on health expenditure. Plus, higher price in health care
will cause the decrease in health expenditure as found by Musgrove et al.
(2002) where health expenditure and income has positive relationship and is
statistically significant for either low, medium and high income countries.
Other than that, both health expenditure and income is bi-directional which
indicate it as vehicle to economic growth in Malaysia. this can be explained by
Mushkin (1962) which stated that health is a capital and investment on it as a
source to generate more economic growth.
Mathew (2007) studies health
expenditure in term of public sector. The study conducted resulted in negative
impact of public health care expenditure (PHCE) on GDP in long-run
relationship. For the Granger causality test, it resulted in GDP does not
granger cause PHCE and the vice versa happened. Also, there were existence of
long run linear relationship between both variables. There were also negative
impact of PHCE towards GDP which 1% increase in GDP lead to 0.024% increase in
PHCE. Apparently, the healthcare in Kenya is known as necessary good which
causes by increase in income will increase its demand as stated in the theory
of price elasticity.
2.2.4 Economic Growth
Tourism has become one of the most
significant export sectors which contribute wealth in economic growth of a
country, mostly developing country according to Samini et al. (2011). Medical
tourism, a sub-sector of tourism is one of the most rapidly growing sector in
world. Cohen (2008) stated that medical tourism occurs when tourism and medical
treatment takes place at the same time. If before when the technology starts
blooming aggressively, medical tourism happened when wealthy person from less
developed country travelled to developed country for an advanced treatment. But
now, the other way round happen. People from developed country came to
developing country for treatment because of its low cost yet high quality
treatment and also to avoid the queing line. So, this new-kind medical tourism
does contribute to the economic growth of related country.
Tang (2015) studies the effect of
medical tourism towards economic growth in Malaysia. it is found that medical
tourism has slightly higher contribution than real capital and export variables
where a 10% increase in medical tourism will increase 1.1% of the GDP growth.
However a 10% increase real capital and export of goods will only causes an
increase in 0.67% and 0.98% of the GDP. In all estimated VECM test to find
Granger causality, the coefficient are statistically significant at 5% level
which shows that all four determinant has Granger-cause each other in the long
run. It then resulted in uni-directional causality running from medical tourism
to economic growth which shows that medical tourism is an effective catalyst
and contributor of economic growth suitable to the tourism-led growth (TLG)
Tamat (2011) studies the dynamic
relationship between economic growth, trade and total tourist arrival of
Malaysia and his major tourism partner in term of ASEAN countries, Thailand,
Indonesia and Brunei from 1997:Q1 to 2007:Q4. The results showed that there
were bi-directional causation between trade and tourist arrival for
Malaysia-Brunei partner while unidirectional causation from real income to
tourist arrival for Malaysia-Singapore and Malaysia-Indonesia relationship.
This research uses ARDL approach which developed by Pesaran et. al (2001) and
also Granger causality test for the relationship between each variable. The
result explained that there were positive effect on promoting tourism sector
where it not only limited to the industry but also international trade which
will increase the economic growth of the country as well.
et al (2008) studies the relationship between tourism expenditure, real
exchange rate and economic growth by using quarterly as a case studies in
Mexico. Cointegration test is done and found out in the long-run, there are
relationship between real GDP with tourism expenditure and exchange rate. Then,
Granger causality test is done and shows that both tourism expenditure and
exchange rate are weakly exogenous which will Granger cause real GDP in the
long-run. This is because the elasticity of GDP is 0.696 which mean 100%
increase in tourism expenditure will lead to 70% increase of Mexican real
product. So, international tourism expenditure can positively effects economic
growth of Mexican and TLG hypothesis can be applied.
Julide (2002) investigate the
relationship between tourism and economic growth by using VAR framework from
1962 to 2002 annually. The VAR model tells that there are no serial
correlation, autoregressive, heteroscedasticity problem. Also, there is no
problem of cointegrating which shows that tourism revenues, savings and labour
force do not react to the disequilibrium of real income but still react when
there is changes in lagged. So, economic growth can be enhanced by tourism
revenues in the long run but in short run, there is no relationship.
Ioannis S, et al (2015) studied the
contribution of medical tourism towards economic and tourism development in
Greece. This study was a nationwide survey and a total of 177 hotel and 15
members of Hellenic Association of Professional Congress Organizers (HAPCO).
90% of the respondents believed that medical tourism could positively
contributed to the Greece economic growth and regional development by creating
job oppurtunities. Plus, 95.3% of the respondents agreed that to attract more
tourist in medical tourism sector, investment are needed where the government
and top authorities should take note. Lastly, 92.2% of the respondents sure
that medical tourism can contribute to tourism development of Greece because of
it advantages in Hippocratic medicine, natural environment full of resources,
rich cultural heritage, modernized healthcare and most important was it has the
most number of doctor per capita. So, it can be concluded that Greece also
believe that medical tourism van cause a better economic growth.
Asid et al (2012) studies the
linkage between tourism and economic growth in Malaysia. result showed that economic
growth is directly significant towards tourism sector. This mean that economic
growth influence tourism sector and not the other way around. So, this is
against the tourism led growth hypothesis (TLGH) where tourism will give impact
toward economic growth.