Although there are arguments that development in tourism industry leads to economic development, very few studies empirically addressed this issue. This paper investigates the issue from a developing country perspective: Sri Lanka. We use annual data from 1960 to 2000 to model the causal relationship between these two variables (tourism and economic growth) using multivariate cointegration, error-correction modelling and variance decomposition analysis. The results of the study indicate that there is a significant causal relationship from tourism receipts to gross domestic product of Sri Lanka. Therefore, economic policies should be directed to boost tourism industry so that the GDP can be increased resulting in a higher economic growth.
Paper presented at the 17th Council for Australian University Tourism and Hospitality Education's (CAUTHE) annual conference, titled Tourism: Past Achievements, Future Challenges, hosted by the University of Technology, Sydney, and the University of New South Wales.