Identification of relationship between macroeconomic variables and tourist arrivals to sri lanka

Abstract

The study investigates the macroeconomic factors which affect on tourist arrivals in Sri Lanka for the period 1990-2014, using annually series of the corresponding variables. To achieve the objectives both time series technique and econometrics techniques were used to analysis of data. The statistical techniques used include the unit root Augmented Dickey Fuller test in order to fulfill the objective of stationary for all the time series. The results from granger causality revealed that past behavior of gross domestic production, gross domestic per capita income, government expenditure on capital and net lending, imports of goods, exports of goods and foreign direct investment are significant factors which determine the present behavior of tourist arrivals. The regression analysis it showed that all macroeconomic variables are strongly linear associated with tourist arrivals. The VECM model has revealed that there exists long run relationship between tourist arrivals and those variables. While tourist arrivals have elastic behavior with respect to gross domestic production, per capita income, imports and tourist cost and inelastic demand with respect to exports, direct employment and inflation rate in the economy. The results derived in this study can be effectively used for implementation of new strategies to attract more tourists to Sri Lanka.