Dynamic impact of exchange rate on tourism demand in Sri Lanka

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.