Abstract:
Tourism is considered a fast-growing industry in Sri Lanka and it is used as a
vital strategy to achieve greater economic productivity. The main objective of
this study is to examine the role of the tourism industry in the economic growth
of Sri Lanka. In order to achieve this objective, the ARDL test is applied to
examine the long-run relationship between the variables and the error
correction model is applied to examine the short-run relationships between the
variables. Further, in this research, the Granger Causality test is used to
examine the causality relationship between the variables. The GDP, the
revenue of the tourism sector, tourist arrivals, the total employment of the
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 E-views 10 and MS Excel were used to analyze 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
employment have a positive and significant impact on economic growth in the
long run. The Error Correction Model found that tourist arrivals have a
positive and significant impact on economic growth in the short run. At the
same time, the 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 confirms that the government and
private investments in tourism and in developing the infrastructure of the
country are necessary in order to enhance the economic growth of Sri Lanka.
Additionally, macroeconomic policies must be put into effect to stimulate
tourism development through the utilization of untapped tourism resources in
Sri Lanka.
