Abstract:
Tourism is considered as a fast growing industry in Sri Lanka and it is used as a vital
strategy to reach greater economic productivity. The main objective of this study
is to examine the role of tourism industry on economic growth of Sri Lanka. In order
to reach this objective, the ARDL test is applied to examine the long run
relationship between the variables and Error Correction Model is applied to
examine the short run relationships between the variables. Further, in this research
Granger Causality test is used to examine the causality relationship between the
variables. The GDP, the revenue of tourism sector, tourist arrivals, the total
employment of tourism sector and the number of tourist nights are the variables
used in this research. The analysis was carried out for the period from 1977 to 2018
and the software’s of E - views 10 and Ms Excel are used to analyses the data. The
ARDL Bound Test results confirmed that there is a cointegrating relationship
between the variables. According to this test, it is decided that, in the long run the
tourism industry contributes immensely to the economic growth of Sri Lanka.
Further, this test suggests that, tourism revenue and tourism employments have
positive and significant impact on Economic Growth in the long run. The Error
Correction Model found that, tourist arrival has positive and significant impact on
Economic Growth in short run. At the same time Granger Causality Test indicates
that, there is a uni-directional causation between the tourism sector and the
economic growth of Sri Lanka. According to these results this research emphasizes
that, the government and private investments on tourism and by developing the
infrastructure of the country in order to enhance the economic growth of Srilanka.
Additionally, macroeconomic policies must to be taken into act to the stimulate
tourism development through utilize untapped tourism resources in Sri Lanka.
