Long-Run Nexus of Tourism and Economic Growth in Sri Lanka: Empirical Evidence Using Cointegration Analysis

Abstract

This study investigates the association between economic growth and tourism in Sri Lanka using cointegration analysis from 1980 to 2019. The research was performed using the Augmented Dickey-Fuller test, Phillips-Perron test, Engle-Granger cointegration, and Granger causality tests. The results revealed a long-run equilibrium relationship among variables, while a disequilibrium exists in the short run. The estimated error correction term is theoretically acceptable and found approximately 5 per cent yearly correction of its disequilibrium in the short run. The Granger causality test presented a long-run unidirectional causality from tourism to economic growth. Thus, findings confirm the tourism-led growth hypothesis in Sri Lanka's tourism and development spectrum. Therefore, tourism has a significant positive impact on economic activities in the long run. Findings further emphasise that the benefits of economic development must be transferred to the further development of tourism to maintain a bilateral causality which is an important concept in this regard. It provides the rationale for further developing productive policy strategies to attract more tourists to the country and upsurge visitor expenditures during their stay in Sri Lanka since Sri Lanka has significantly developed its accommodation capacities. Findings further reveal that the tourism sector must be developed parallel to economic development to boost growth through tourism. Therefore, all sectors, the government, private bodies, and voluntary organisations must become active partners in this endeavour. Policy implications need to focus on every aspect of enhancing tourism as a growth engine.

Keywords

• Tourism
• Economic Growth
• Empirical Evidence
• Sri Lanka