An Analysis of the Relationship between the Real Gross Domestic Production (RGDP) and Tourism Sector: An Econometric Study on Sri Lankan Perspective

Abstract

This study targeted to find the relationship between the Real Gross Domestic Production and the tourism industry which was one of the key industries in promoting economic growth and development in Sri Lankan context. The variables used in this study were Real Gross Domestic Production, Tourism Receipts/Income, Tourists Arrivals, Tourism Employment and Dummy (1/0). The dependant variable was Real Gross Domestic Production and the rest of the variables were independent variables. The Dummy stood for the war period or not by defining ‘1’ for the war period and ‘0’ for non-war period in Sri Lankan context. The data used in this study were collected from the annual reports of Central Bank of Sri Lanka for the time period of 1970 to 2014. The quantitative methodology used in this study was based on the econometric analysis using the Statistical Software of E-Views, Minitab and MS Excel in collaboration with the parametric and non parametric analyses. The time series econometric techniques such as Augmented Dickey Fuller for unit root test, Engle Granger for co-integration and Granger causality test for causal relationships between the variables were used in this study. This study found that a positive relationship existed between tourism receipts and economic growth in the long run and the unit root test resulted in the stationarity of the variable. The Granger causality test showed the two way causal relationships from Tourism Receipts to Real Gross Domestic Production and from Real Gross Domestic Production to Tourism Receipts. This study prominently suggested for the government and policy makers to keep on focusing on the economic policies to be designed for the promotion of tourism industry as one of the prospective sources for economic growth and development in Sri Lanka.