Relationship between tourism and economic growth in Sri Lanka

Abstract

This study identifies whether there is any significant relationship between tourism industry and economic growth in Sri Lanka. Tourism is an important component in the economy of most of the countries especially in Asia because of its environment, culture and heritage. It is considered as the main contributor to the economy in many countries and plays a crucial role in achieving macroeconomic stability. In Sri Lanka tourism can be identified as a critical component in the economy because it impacts on and is impacted from many other sectors in the economy. Transportation, accommodation, food and agriculture, retailing and manufacturing sectors of the country are heavily impacted on the changes in the tourism industry. Also, the contribution of the tourism sector to the Gross Domestic Production has increased after 2010 when compared with the previous years. Identifying the availability of any unidirectional relationship from tourism industry to economic growth is aimed and identifying the bi causal relationships is not an objective of this study. The study has used tourism earnings and tourist arrivals as independent variables to measure the tourism industry and Gross Domestic Product the dependent variable to measure the economic growth. Time series data from year 1978 to 2016 has used in conducting this study. Model validity tests such as normality test, Descriptive statistics, Regression question and multicollinearity test has applied in order to develop a well fitted model and relationship measurement tests such as multiple regression analysis, has used to identify the relationship between the variables. Findings reveal that there is a significant positive relationship between Tourism and Economic Growth in Sri Lanka. Further it was able to conclude that there is no any short-term relationship and the relationship between tourism and economic growth is long term. Accordingly, the study recommends to implement favorable policies to boost the tourism industry in order to accelerate the growth of the country.