The Contribution of Tourism Income for the Economic Growth of Sri Lanka

Abstract

Tourism income is one of the important segments that contribute to the Sri Lankan economy. Recent trends of Sri Lankan Gross Domestic Production (GDP) shows a significant role which played by the service sector indicating over 60 percent contribution. Island economies such as Bahamas and Maldives secures half of their government revenue from tourism where in Sri Lanka it remains at the fifth place in terms of foreign revenue earning items. Equally, of those economies where tourism is bullying, tourism related activities play a critical role in generating tourism income, foreign direct investment, employment opportunities as well as increasing gross domestic production. Thus, with an eye to clarify the relationships between tourism income and economic growth of Sri Lanka this study explores the significant variables contribute to tourism income and their relationships with the overall GDP. In order to achieve research objectives the quantitative approach was entrusted through secondary data based OLS regression analysis of the data from 1979 to 2017. This paper analyzed the contribution of tourism income for the growth of Sri Lankan economy using time series analysis using the data from 1970-2017. The researcher identified relationship between economic growth and tourism income in terms of four macroeconomic variables. Political stability is used as a proxy which has been tested as a dummy variable. Findings show significant relationships among macroeconomic variables tested and the economic growth of the Island. Stable political condition is positively influenced on tourism income. This study highlighted the country has to maintain and promote tourism destinations and stable political situation to secure stable tourism income and long term economic growth.

Keywords: Tourism income, economic growth, political stability, post-war economies, Sri Lanka

JEL Classification: M10, M16, M20, M21, O10