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The purpose of this paper is to explore the long-run relationship and causality between economic activity and inbound tourism in the context of the Indonesian economy with a new quantitative methodology.

This research applies a new modified bounds testing approach of Pesaran et al. (2001) by Kripfganz and Schneider (2018) with the period of observation from 1974 to 2017.

The results suggest that there is a unidirectional causality from economic activity to inbound tourism.

This research applies the linear autoregressive distributed lag (ARDL) model and only uses bivariate variables to examine the existence of the tourism-led growth hypothesis. Further studies for the Indonesian case may apply a nonlinear ARDL model. Also, the addition of other socio-economic variables, especially those related to domestic tourism activity, can be applied to improve the model.

This work will provide an alternative quantitative methodology for scholars in studying the relationship between tourism and economic variables.

The findings in this research can complement touristic-public policy decision, and the methodology may be important for knowledge transfer.

This is the first quantitative study to measure tourism-led growth hypothesis in Indonesia by using the latest modified bounds testing approach.