Abstract:
The objective of this study is to test the dynamic impact of exchange rate on tourism demand in Sri Lanka over the period of 1970-2015. In this study, the unit root test and bivariate cointegration test were employed. The unit root test result indicates that the variables used in this study are non- stationary at their level, become stationary at their 1st difference. The bivariate cointegration test indicates that the exchange rate in Sri Lanka has a long-run relationship with tourism demand. Bothe the long-run and short estimated model of this study indicate that the key independent variable of the exchange rate has a positive and significant relationship with tourism demand in Sri Lanka under the study period. Further, the Durbin Watson test statistics of both estimated long-run and short-run model confirm that they are not suffering from the autocorrelation issue.
