An analysis of the relationship between tourist arrivals and exchange rates: an empirical study in the context of Sri Lanka

Abstract

This study prominently aimed to find the relationship between the tourist’s arrivals and the exchange rates in Sri Lankan context using the quantitative approach method. The time series data for the period of 1950 to 2014 were collected from the annual report of the central bank of Sri Lanka. The tourists arrivals was the dependent variable and Exchange rate of French Franc, Exchange rate of Indian Rupee, Exchange rate of Japanese Yen, Exchange rate of Pound Sterling, Exchange rate of US dollar, and Dummy (D) were the independent variables in this study. The dependent variable was influenced by the independent variables influenced by external determinants. All the variables used in this study were stationary at its first difference. That is, all the six variables were integrated of same order one I(1). There was a one way causal relationship between exchange rate of Japanese Yen and exchange rate of French Frank, Exchange rate of Sterling Pound and exchange rate of US dollar. The arrival of tourist decreased by 0.84 percent before 1977 and the arrival of tourists increased by 0.84 percent after 1977 along with the changes in exchange rates. Exchange rate of French Franc, Exchange rate of US dollar and Dummy were related directly with the tourists’ arrival. The value of R-squared is 0.910208 which is less than Durbin-Watson Statistic (1.434773). All the variables were having a long run associationship or all the variables were finally moving together. The contribution of the tourism sector to the Gross Domestic Product of the country would be motivated and energized by the exchange rate of Sri Lankan currency with other foreign currencies.