Abstract:
Tourism has been identified as one of key industries in promoting economic growth and
development of Sri Lanka. The tourism industry is highly susceptible to crises and
tourism demand is strongly influenced by the economic, social, environmental, health and
political aspects of a destination (and source markets). Throughout the course of history,
the tourism industry has encountered overwhelming challenges, with the COVID-19
pandemic being the most recent challenge, bringing the industry almost entirely to a
standstill. Importance of understanding the relationship between tourism earnings and
economic growth has inspired many scholars to investigate the underlying relationship
between these variables. Empirical achievements and theoretical publications have also
aroused considerable interest among economists and policymakers as a stimulating for
tourism earning issues. The purpose of this study is to fill the existing gap and contribute
to the existing literature by shedding light on the growth effects of tourism earnings on
the growth effects of tourism earnings on the Sri Lankan economy. The objective of this
study is to examine the causal relationship between economic growth and tourism earning
in Sri Lanka. The annual time series data over period of 1970 to 2020 have been used and
were drawn from Johansen Co – integration test and Granger Causality tests are used to
evaluate the long – run equilibrium relationship between the variables. The results of the
Unit Root test indicated that all variables were non – stationary at levels but they were
stationary at first differences. The study further found that there is one co – integration
between the variables. Granger Causality test also used to identify the long – run
relationship with the variables. As per the results there is a causality relationship between
tourism arrivals and tourism earnings. Vector Error Correction Model and Vector Auto
Regression models are used to identify the short–run relationship with the variables.
Results found there is a short – run relationship with tourism arrivals and economic
growth. OLS Regression test proved there is a positive and significant relationship with tourism earnings and economic growth. The study suggests that the role of tourism in
economic growth could be highly emphasized. The finding validates the need of
government involvement at promoting and increasing international tourism demand to
attain sustainable growth and development in the industry. The study has implication for
policymakers of Sri Lanka economic development that tourism should lead to economic
growth in the future; and to attain such causality, they should presently devise strategies
against the tourism-led-economic growth hypothesis.
