Causal relationship between international trade and tourism: empirical evidence from Sri Lanka

Abstract

Introduction

Sri Lanka has an inherit benefit of having a highly diversified tourism product which could be pitched against any other well established tourism destination in the world. It is highly labor intensive and very significant source in employment which recorded over 1.2 million tourist arrivals in 2013 with 26.7% of growth compared to the previous year (Central Bank Report, 2013). Furthermore, continues performance within the industry is validating by the Master-Card ratings in 2015, ‘Colombo’ is the city with the best growing tourism sector in the world.

The collaboration of such fast gaining industry with trade protocols and economic growth of a country may vital for an under developed country to achieve an adequate position within modern market structures. Shan and Wilson (2001), and Kadir (2010) use Granger causality test in heterogeneous panels to investigate the nature of causality vary among travel and trade flows of some under developed economies. Their findings indicate that there is a bilateral causality between trade in goods and the tourism expenditure for respective countries, which stimulates us to investigate the domestic phenomena where fewer researches were taken.