The main purpose of this study is to examine the dynamic relationship between tourist arrivals, inflation, unemployment and crime rates in Malaysia. This study covered the annual data from 1970 to 2008.
The multivariate Johansen‐Juselius cointegration test is employed to examine the potential long‐run equilibrium relationship. While the Granger causality test within the vector error‐correction modelling (VECM) framework is applied to determine the causal relationship between crime rate and its determinants.
The Johansen‐Juselius cointegration test result reveals that the variables are cointegrated and the dynamic ordinary least squares estimator suggest that unemployment, inflation and tourist arrivals are positively related to crime rates in Malaysia. For Granger causality, in the long‐run tourist arrivals, inflation and unemployment rates Granger cause crime rate in Malaysia. However, in the short run we find bilateral causality between unemployment, crime and tourist arrivals. Finally, the variance decompositions and impulse response functions analyses implied that unemployment, inflation and tourist arrivals are important in explaining the variation in crime for Malaysia.
The estimated crime rate function for Malaysia demonstrated that promoting supply‐side economy and also increases the numbers of police and patrolling duties in the potential crime areas will reduce the crime rate in Malaysia and in the same time attract more tourist arrivals to Malaysia.
