Abstract:
Tourism has become an important economic activity
in all the countries of the world. It creates direct and indirect
impact on the economy. Foreign Direct Investment (FDI) is
considered as one of the routes through which developing
countries can reach tourism. In this regard, Sri Lanka offers
attractive investment opportunities for foreign companies and
has adopted a number of policies to attract FDI into the
country. The aim of this study is to investigate the relationship
between tourism and Foreign Direct Investment in Sri Lanka.
Annual data gathered for the period from 1978 to 2014 and
forecasted data for the period from 2015 to 2016 were used for
the study. Data were analyzed using E-Views. Augmented
Dickey-Fuller is used for unit root test, while Engle–Granger is
used for co-integration, whereas Granger causality test was
employed to find the causal relationships. The empirical
evidence shows that there is a statistically significant and
positive relationship between tourism receipts and Foreign
Direct Investment. Granger causality test revealed that there
exists two-way causality implying that Foreign Direct
Investments helped to boost tourism sector while tourism
earnings stimulated the Foreign Direct Investment
