LITERATURE REVIEW2.0 INTRODUCTION This study is to look out at theeconomic effects of medical tourism toward economic growth as the case study ofMalaysia.
The independent variables are tourist arrival, foreign patients andhealth expenditure while economic growth act as the dependent variable. Therelationship between these variables will be tested for statisticallysignificant. Plus, this chapter contains three elements which includetheoretical framework, overall testing procedures and empirical findings inprevious researches either locally or international research.2.1 THEORETICAL FRAMEWORK Former studies have been proficientassistance for this research which they act as an indicator and model for thisresearch on medical tourism and economic growth. This tourism-based research iscommon but by adding up medical variable to relate it to economic growth issomething 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 ofthe most vital areas of studies these days. There were numbers of empiricalwork have been done by previous researcher to find the validity of this TLGhypothesis. This research has been done for both developed and developingcountries to find any distinct relationship between both of them. Plus, according to previous researhers, theyfound that tourism expansion does not come from economic growth but they werelikely to support the TLG hypothesis.
This evidence came from Oh (2005) inresearch for South Korea find out there were unidirectional causality ofeconomic driven tourism growth, Kartircioglu (2009) for Turkey which supportthe TLG hypothesis where there were unidirectional from tourism to economicgrowth and Tang (2011) for Malaysia which showed that not all internationaltourism can granger- cause economic growth. To measure the relationship betweentourism and economic growth, usually data of tourist arrival and tourismrevenue will be used as the measurement. TLG is the most appropriate theory tounderstand the relationship of both variables. Plus, it has been proved thattourism can also lead to the growth of other sector such service sector,transportation and hospitality sector.2.
2 EMPIRICAL FINDINGS2.2.1 Tourist Arrival Tourist arrival has always been thedeterminant to measure the relationship between tourism and economic growth ofa 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 arrivaland international tourist arrival. Chew (2009) studies the relationshipbetween healthcare and international tourism in Singapore. Data of totaltourist arrival is used as the proxy for international tourism. This researchis particularly investigate the interaction of short run and long run dynamicbetween health care and international tourism by using cointegration andGranger causality test. It resulted in the existence of unidirectionalcausality between healthcare to international tourism in long run while in shortrun there is no causality. This reflected that healthcare has positive effectson international tourism and with that the Singaporean government hasentrenched itself as a top medical hub to attract more international tourist.
Furthermore, Cheah et al. (2014)studies the relationship between tourist arrival and government healthcarespending which took place in Malaysia. the studies resulted in tourist arrivalgiving negative impact on government healthcare spending which it is contradictwith Lee and Hung (2010) research where they found positive impact betweenboth. The explanation to this result is that we Malaysia have one policy thatwhen the number of tourist arrival coming for healthcare basis increase,government will reduce its role so that private sector can increase its qualityof healthcare services. Plus, the study by Lee and Hung (2010) took place inSingapore, a developed country and might have different policy than Malaysia.So, government should maintained the development of economic and tourism sectorto 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 sevenMediterranean countries. This study use a panel data approach, annual data from1980 to 2007. This study uses fully modified OLS (FMOLS), panel unit root testand panel cointegration test. The result shows tourist receipts, real exchangerate has positive impact on GDP. Moreover, it says real exchange rate has thecommon scale impact on GDP where the higher the exchange rate, foreign exchangetourism receipts will be higher too. So, based on panel cointegration , thereis solid evidence between tourism development and GDP in the case of sevenMediterranean countries while FMOLS indicate the high impact of tourist arrivaland receipts on economic growth. Yaovarate et al.
(2010) thisresearch uses panel data to investigate the impact of CPI towards tourismdemand of Malaysia, USA and Japan to Thailand. Overally, each country uses different amount of data due to thelimitation of monthly CPI data. In this research ARIMA and seasonal ARIMAXmodel 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 thetourist arrival to Thailand. Furthermore, the higher the CPI, the lower thedemand of tourist to Thailand. The CPI of Japan and Malaysia does not effectsthe demand of tourist to Thailand because both are known as short and mediumhaul country as travelling to Thailand does not require expenditure unlike USA.2.
2.2 Foreign Patients Foreign patients are internationaltourists who come across border for the purpose of getting treatment. Foreignpatients can also be known as medical tourist as both have the same desire ofgoing for holiday while getting medical treatment. For Malaysia, factorsforeign patients to choose coming there are because of its low cost, highquality of service and facilities and also because of the tourist attraction.Johor, Penang and Selangor are some places which known as the popular place formedical tourism.
According to Chee (2010) studies themedical tourism and its state in Malaysia and Singapore. In her studies, it saysabout foreign patients for both Malaysia and Singapore. It shows that Malaysiahas 5 years consecutive of growth for foreign patients. Also, it can be saidthat the nature of medical tourist is regional as many of them came fromneighboring countries. Jeroen et al (2016) studies theimpacts of state-level analysis of the economy toward medical tourism inMalaysia.
this studies included nine state-level of foreign patients data inMalaysia which can be divided into outpatient and inpatients. This studies usesI-O (input-output) model analysis to calculate impacts of economic caused byfinal demand by medical tourist and gives detail explanation by showingseparate impacts for each sector and state. So, this studies find out that moreattention should be given to real and potential implication of the high ratioof 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 andBarbados. They studied the different perspective of international patientstowards the emerging sectors. Using qualitative method of interviews 100stakeholders between May 2013 and February 2014, there could identified twogroups of international patients; international patients with readilyaccessible and international patients with no existing ties to the region. Thestudy found out that international patients with readily accessible give lessimpact toward the economic because tend to stay at relatives house that athotel. Both Guatemala and Barbados country has always relied on patients byneighbouring countries to support their medical tourism.
Both also found theirown comparative advantage where Barbados has high English speaking populationand Guatemala on its large diaspora population to attract more internationalpatients. Other than that, a research by Ahmadet al (2017) which studied the determinant of foreign patients loyalty inmedical tourism industry. The findings showed that service quality, customersatisfaction, perceived value and trust has positively significant towardsforeign patients loyalty. Meaning that, to remain and attract more foreignpatients, government should provide good service quality and facilities. Plus,with more foreign patients, the medical tourism industry will soaring. Abdullah, S (2013) studied thevarious factors that can contribute to the development of medical tourism inMalaysia. This study is a quantitative study and he used Structural EquationModel (SEM) for the data analysis.
This study targeted medical tourist comingto Malaysia for medical and sightseeing purpose and has collected 266 samplesize from December 2012 to February 2013. This study accepted its hypothesis 1(H1) and hypothesis 2(H2) saying that destination competitiveness and serviceplays an important role in influencing the medical tourist decision. But thisstudy rejected the hypothesis 3 (H3) saying that customer service does notinfluence the medical tourist’s choice. So, from this result, we can concludedthat Malaysia is one of the competitive destination which has been chose by themedical tourist.2.
2.3 Health Expenditure Health expenditure is important tomeasure the amount of money allocate for the sector. Health expenditure can bedivided into public and private health expenditure. For medical tourism, mostof the expenditure is in term of private sector because in Malaysia, governmenthad allocate an amount for the private sector to promote and upgrade thequality of its services for the sake of economic growth. According to Badamassi et al. (2017),the study focused on health expenditure impactto economic growth.
The research took place in 36 Sub-Saharan African countriesand is a panel data analysis. This studies resulted in a positive effect betweenboth health expenditure and economic growth variable. Both were alsostatiscally significant. Based on the result stated, healthcare expenditure isimportant and is known as basic necessity rather than a luxury goods. So theperformance of healthcare expenditure either increase or decrease will effectthe 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 andeconomic growth between 6 CEMAC member states and 5 Sub-Saharan Africancountries.
Even though both are positive but countries which agreed with Abujaagreement gain higher growth than CEMAC countries. Both types of countries alsohave the existence of long-run relationship. CEMAC countries havebi-directional causality between economic growth to health expenditure whileonly unilateral causality for Abuja from same direction. So, Abuja declarationcountries gain higher economic growth when there is increase in healthexpenditure which explain the importance of having Abuja declaration. While most researcher use Grangercausality test, this research by Anne et al. (2016) used Toda Yamamoto. Thetest revealed that there is no direct effect of government health expendituretowards economic growth.
It indirectly effect by using mortality and lifeexpectancy data to determine health outcome. So, apparently government shouldalso take note on the mortality and life expectancy rate to determine therelationship between health expenditure and economic growth. Tang (2010) studies the determinantof health expenditure by using cointegration, causality and variancedecomposition analyses. Based on cointegration test, income and POP65 haspositive relationship with health expenditure in the long run. While, price hasnegative relationship with health expenditure.
This empirical finding explainthat as income and older population increase, there will be high tendencies toincrease the spending on health expenditure. Plus, higher price in health carewill cause the decrease in health expenditure as found by Musgrove et al.(2002) where health expenditure and income has positive relationship and isstatistically significant for either low, medium and high income countries.Other than that, both health expenditure and income is bi-directional whichindicate it as vehicle to economic growth in Malaysia. this can be explained byMushkin (1962) which stated that health is a capital and investment on it as asource to generate more economic growth. Mathew (2007) studies healthexpenditure in term of public sector.
The study conducted resulted in negativeimpact of public health care expenditure (PHCE) on GDP in long-runrelationship. For the Granger causality test, it resulted in GDP does notgranger cause PHCE and the vice versa happened. Also, there were existence oflong run linear relationship between both variables. There were also negativeimpact of PHCE towards GDP which 1% increase in GDP lead to 0.024% increase inPHCE. Apparently, the healthcare in Kenya is known as necessary good whichcauses by increase in income will increase its demand as stated in the theoryof price elasticity.
2.2.4 Economic Growth Tourism has become one of the mostsignificant export sectors which contribute wealth in economic growth of acountry, mostly developing country according to Samini et al. (2011). Medicaltourism, a sub-sector of tourism is one of the most rapidly growing sector inworld. Cohen (2008) stated that medical tourism occurs when tourism and medicaltreatment takes place at the same time. If before when the technology startsblooming aggressively, medical tourism happened when wealthy person from lessdeveloped country travelled to developed country for an advanced treatment.
Butnow, the other way round happen. People from developed country came todeveloping country for treatment because of its low cost yet high qualitytreatment and also to avoid the queing line. So, this new-kind medical tourismdoes contribute to the economic growth of related country. Tang (2015) studies the effect ofmedical tourism towards economic growth in Malaysia. it is found that medicaltourism has slightly higher contribution than real capital and export variableswhere 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 anincrease in 0.67% and 0.98% of the GDP. In all estimated VECM test to findGranger causality, the coefficient are statistically significant at 5% levelwhich shows that all four determinant has Granger-cause each other in the longrun. It then resulted in uni-directional causality running from medical tourismto economic growth which shows that medical tourism is an effective catalystand contributor of economic growth suitable to the tourism-led growth (TLG)hypothesis. Tamat (2011) studies the dynamicrelationship between economic growth, trade and total tourist arrival ofMalaysia and his major tourism partner in term of ASEAN countries, Thailand,Indonesia and Brunei from 1997:Q1 to 2007:Q4.
The results showed that therewere bi-directional causation between trade and tourist arrival forMalaysia-Brunei partner while unidirectional causation from real income totourist arrival for Malaysia-Singapore and Malaysia-Indonesia relationship.This research uses ARDL approach which developed by Pesaran et. al (2001) andalso Granger causality test for the relationship between each variable.
Theresult explained that there were positive effect on promoting tourism sectorwhere it not only limited to the industry but also international trade whichwill increase the economic growth of the country as well.Bridaet al (2008) studies the relationship between tourism expenditure, realexchange rate and economic growth by using quarterly as a case studies inMexico. Cointegration test is done and found out in the long-run, there arerelationship between real GDP with tourism expenditure and exchange rate. Then,Granger causality test is done and shows that both tourism expenditure andexchange rate are weakly exogenous which will Granger cause real GDP in thelong-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 realproduct. So, international tourism expenditure can positively effects economicgrowth of Mexican and TLG hypothesis can be applied. Julide (2002) investigate therelationship between tourism and economic growth by using VAR framework from1962 to 2002 annually. The VAR model tells that there are no serialcorrelation, autoregressive, heteroscedasticity problem.
Also, there is noproblem of cointegrating which shows that tourism revenues, savings and labourforce do not react to the disequilibrium of real income but still react whenthere is changes in lagged. So, economic growth can be enhanced by tourismrevenues in the long run but in short run, there is no relationship. Ioannis S, et al (2015) studied thecontribution of medical tourism towards economic and tourism development inGreece. This study was a nationwide survey and a total of 177 hotel and 15members of Hellenic Association of Professional Congress Organizers (HAPCO).90% of the respondents believed that medical tourism could positivelycontributed to the Greece economic growth and regional development by creatingjob oppurtunities. Plus, 95.3% of the respondents agreed that to attract moretourist in medical tourism sector, investment are needed where the governmentand top authorities should take note. Lastly, 92.
2% of the respondents surethat medical tourism can contribute to tourism development of Greece because ofit advantages in Hippocratic medicine, natural environment full of resources,rich cultural heritage, modernized healthcare and most important was it has themost number of doctor per capita. So, it can be concluded that Greece alsobelieve that medical tourism van cause a better economic growth. Asid et al (2012) studies thelinkage between tourism and economic growth in Malaysia. result showed that economicgrowth is directly significant towards tourism sector. This mean that economicgrowth influence tourism sector and not the other way around.
So, this isagainst the tourism led growth hypothesis (TLGH) where tourism will give impacttoward economic growth.