The Relationship among FDI, GDP and International Tourist Arrivals for Sri Lanka: An Analysis of Granger Causality

Abstract

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Tourism is regarded as a dynamic economic industry in the world, specifically fo r developing countries like Sri Lanka. Studies o f the causality between three variables are rare and to bridge that gap, this research examines the causal relationship among International Tourist Arrivals (ITA), Foreign D irect Investm ent (FDI) and Gross Domestic Product (GDP) fo r Sri Lanka. Unit root test. Co-integration test, optim al lag length, Vector A uto-Regression (VAR) and Granger causality are em ployed to investigate the relationship between GDP, FD I and ITA. Annual data from 1985 to 2014 com piled by the Central Bank o f Sri Lanka and W orld Bank was used in this study. GDP is m easured by US$ m illions, ITA by the amount o f tourism visitors, m illion people, and FD I by FD I inward, USS m illions ’. The results reveal that there is no cointegration am ong GDP, ITA and FDI. Correspondentfy, Granger causality analysis fin d s out the short-run influence o f GDP on FD I and ITA.