Investigation of the impact of tourism earnings on economic growth in Sri Lanka

Abstract

The objective of this study is to examine the impact of tourism earnings on economic growth in Sri Lanka over the period of 1970-2015. In order to attain the purpose of this study, both exploratory data analysis and inferential data analysis techniques have been used. In the exploratory data analysis, the scatter plots, confidence ellipse with kernel fit were included. The inferential data analysis consisted of unit root test, autoregressive distributed lag (ARDL) Bounds cointegration test, Granger causality test, and impulse response function analysis. The exploratory data analysis confirms that there is a positive relationship between tourism earnings and economic growth. The unit root test results indicates that the variables used in this study are I(1). The ARDL Bounds cointegration test endorses the presence of long-run relationship between the variables. The long-run and short-run coefficient of the variable of tourism earnings confirm to have a positive relationship with economic growth in Sri Lanka over the study periods. The Granger- causality test result shows the existence of bidirectional causality between the variables of tourism and economic growth. Finally, the impulse response function analysis indicates that a positive shock to foreign direct investment has immediate significant positive impact on the gross domestic product up to 10th year.