Advertisement

Economic Change and Restructuring

, Volume 51, Issue 1, pp 49–68 | Cite as

Effect of tourism on economic growth of Sri Lanka: accounting for capital per worker, exchange rate and structural breaks

  • Peter Josef Stauvermann
  • Ronald Ravinesh KumarEmail author
  • Syed Jawad Hussain Shahzad
  • Nikeel N. Kumar
Article

Abstract

We explore the nexus between tourism, exchange rate and economic growth in Sri Lanka over the period 1980–2014. Using the augmented Solow (Q J Econ 70(1):65–94, 1956) framework and the ARDL bounds procedure whilst accounting for structural breaks using Bai and Perron (J Appl Econ 18(1):1–22, 2003) multiple break tests, the short-run and long-run association and impacts are examined. The results confirm the presence of a long-run association between tourism receipts (% of GDP), exchange rate, capital per worker and output per worker. The regression results show a 1% increase in tourism receipts results in a 0.03 and 0.06% increase in output per worker in the short-run and long-run, respectively. A unidirectional causality is noted from tourism to output per worker; from exchange rate to output per worker and capital per worker; and from output to capital, in per worker terms. Finally, we note that although structural breaks periods have negative association with economic growth, they are not statistically significant.

Keywords

Tourism Economic growth Elasticity Cointegration Causality Structural breaks Sri Lanka 

Notes

Acknowledgements

Peter J. Stauvermann thankfully acknowledges the financial support from the research funds of the Changwon National University 2015–2016. All the authors are grateful to the editor and the anonymous reviewers for their comments and advice. The usual disclaimer applies.

References

  1. Ahmad AH, Aworinde OB (2015) Structural breaks and twin deficits hypothesis in African countries. Econ Chang Restruct 48(1):1–35CrossRefGoogle Scholar
  2. Archer BH (1976) Demand forecasting in tourism. University of Wales Press, BangorGoogle Scholar
  3. Arunatilake N, Jayasuriya S, Kelegama S (2001) The economic cost of the war in Sri Lanka. World Dev 29(9):1483–1500CrossRefGoogle Scholar
  4. Athukorala PC (2000) Manufactured exports and terms of trade of developing countries: evidence from Sri Lanka. J Dev Stud 36(5):89–104CrossRefGoogle Scholar
  5. BBC News (2016) Sri Lanka profile—Timeline—BBC News. http://www.bbc.com/news/world-south-asia-12004081. Accessed 25 Aug 2016
  6. Bai J, Perron P (2003) Computation and analysis of multiple structural change models. J Appl Econom 18(1):1–22CrossRefGoogle Scholar
  7. Balaguer J, Cantavella- Jordà M (2002) Tourism as a long-run economic growth factor: the Spanish case. Appl Econ 34(7):877–884CrossRefGoogle Scholar
  8. Bandara R, Tisdell CA (2003) Use and non-use values of wild Asian elephants: a total economic valuation approach (No. 48961). University of Queensland, School of EconomicsGoogle Scholar
  9. Becchetti L, Castriota S (2010) The effects of a calamity on income and wellbeing of poor microfinance borrowers: the case of the 2004 tsunami shock. J Dev Stud 46(2):211–233CrossRefGoogle Scholar
  10. Bosworth B, Collins SM (2008) Accounting for growth: comparing China and India. J Econ Perspect 22(1):45–66CrossRefGoogle Scholar
  11. Breuss F (2010) Globalisation, EU enlargement and income distribution. Int J Public Policy 6(1–2):15–34Google Scholar
  12. Brida JG, Risso WA (2009) Tourism as a factor of long-run economic growth: an empirical analysis for Chile. Eur J Tour Res 2(2):178–185Google Scholar
  13. Brida JG, Carrera ES, Risso WA (2008) Tourism’s impact on long-run Mexican economic growth. Econ Bull 3(21):1–8Google Scholar
  14. Brida JG, Pereyra SJ, Risso WA, Such Devesa MJ, Zapata Aguirrre S (2009) The tourism-led growth hypothesis: empirical evidence from Colombia. Tour Int Multidiscip J Tour 4(2):13–27Google Scholar
  15. Brida JG, Lanzilotta B, Lionetti S, Risso WA (2010) The tourism-led growth hypothesis for Uruguay. Tour Econ 16(3):765–771CrossRefGoogle Scholar
  16. Candela G, Figini P (2012) The economics of tourism destinations. Springer, HeidelbergCrossRefGoogle Scholar
  17. Cazes G (1992) Tourisme et Tiers Monde. Un bilan controversé, L’Harmattan, ParisGoogle Scholar
  18. Chaffai M, Kinda T, Plane P (2012) Textile Manufacturing in eight developing countries: Does business environment matter for firm technical ffficiency? J Dev Stud 48(10):1470–1488CrossRefGoogle Scholar
  19. Clarke JA, Mirza S (2006) A comparison of some common methods for detecting Granger noncausality. J Stat Comput Simul 76(3):207–231CrossRefGoogle Scholar
  20. Cortez-Jimenez I, Paulina M (2006) A further step into the ELGH and TLGH for Spain and Italy. Fondazione Eni Enrico Mattei Working Paper Series, Nota di Lavoro 118–2006Google Scholar
  21. Daly HE, Cobb J (1989) For the common good: redirecting the economy toward community, the environment, and a sustainable future. Beacon Press, BostonGoogle Scholar
  22. Das S, Gupta R, Kanda PT, Reid M, Tipoy CK, Zerihun MF (2014) Real interest rate persistence in South Africa: evidence and implications. Econ Change Restruct 47(1):41–62CrossRefGoogle Scholar
  23. Dickey DA, Fuller WA (1979) Distribution of the estimators for autoregressive time series with a unit root. J Am Stat Assoc 74(366a):427–431CrossRefGoogle Scholar
  24. Dritsakis N (2004a) Cointegration analysis of German and British tourism demand for Greece. Tour Manag 25(1):111–119CrossRefGoogle Scholar
  25. Dritsakis N (2004b) Tourism as a long-run economic growth factor: an empirical investigation for Greece using causality analysis. Tour Econ 10(3):305–316CrossRefGoogle Scholar
  26. Durbarry R (2004) Tourism and economic growth: the case of Mauritius. Tour Econ 10(4):389–401CrossRefGoogle Scholar
  27. Engle RF, Granger CWJ (1987) Co-integration and error correction: representation, estimation, and testing. Econometrica 55(2):251–276CrossRefGoogle Scholar
  28. Ertur C, Koch W (2007) Growth, technological interdependence and spatial externalities: theory and evidence. J Appl Econom 22(6):1033–1062CrossRefGoogle Scholar
  29. Fayissa B, Nsiah C, Tadasse B (2008) Impact of tourism on economic growth and development in Africa. Tour Econ 14(4):807–818CrossRefGoogle Scholar
  30. Fernando S, Bandara JS, Smith C (2013) Regaining missed opportunities: the role of tourism in post-war development in Sri Lanka. Asia Pac J Tour Res 18(7):685–711CrossRefGoogle Scholar
  31. Gamage A, Shaw RN, Ihalanayake R (1997) The cost of political upheaval to international tourism in Sri Lanka. Asia Pac J Tour Res 2(1):75–87CrossRefGoogle Scholar
  32. Ganegodage KR, Rambaldi AN (2014) Economic consequences of war: evidence from Sri Lanka. J Asian Econ 30:42–53CrossRefGoogle Scholar
  33. Ghali MA (1976) Tourism and economic growth: an empirical study. Econ Dev Cult Change 24(3):527–538CrossRefGoogle Scholar
  34. Gollin D (2002) Getting income shares right. J Polit Econ 110(2):458–474CrossRefGoogle Scholar
  35. Gordon DV, Rankaduwa W (1992) Trade, taxes and debt repayment in Sri Lanka. J Dev Stud 29(1):148–165CrossRefGoogle Scholar
  36. Grobar LM, Gnanaselvam S (1993) The effects of the Sri Lankan war. Econ Dev Cult Change 41(2):395–405CrossRefGoogle Scholar
  37. Guerriero M (2012) The labour share of income around the world. Evidence from panel data set. Paper presented on the 4th Economic development conference of GREThA/GRES “Inequalities and development: new challenges, new measurements?”. University of Bordeaux, June 13–15, 2012 http://piketty.pse.ens.fr/files/Guerriero2012.pdf
  38. Hemachandra WM (2011) Financial crises and impacts of recent financial crises on Sri Lanka. Staff Stud 41(1):1–40CrossRefGoogle Scholar
  39. Hicks JR (1965) Capital and growth. Clarendon, OxfordGoogle Scholar
  40. Hirschman AO (1958) The strategy of economic development. Yale University Press, New HavenGoogle Scholar
  41. Hueting R (1974) Nieuwe schaarste and economische groei. Elsevier, Amsterdam (English edition 1980, New scarcity and economic growth, North-Holland, Amsterdam)Google Scholar
  42. Jin JC (2011) The effects of tourism on economic growth in Hong Kong. Cornel Hosp Q 52(3):333–340CrossRefGoogle Scholar
  43. Joarder MAM, Hossain AN, Ahmed MU (2015) Does the central bank contribute to the political monetary cycles in Bangladesh? Econ Change Restruct. doi: 10.1007/s10644-015-9179-1 Google Scholar
  44. Johansen S, Juselius K (1990) Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxf Bull Econ Stat 52(2):169–210CrossRefGoogle Scholar
  45. Johnson P, Ashworth J (1990) Modelling tourism demand: a summary review. Leis Stud 9(2):145–161CrossRefGoogle Scholar
  46. Kim HJ, Chen M-H, Jang SS (2006) Tourism expansion and economic development: the case of Taiwan. Tour Manag 27(5):925–933CrossRefGoogle Scholar
  47. Kumar RR (2014a) Exploring the role of technology, tourism and financial development: an empirical study of Vietnam. Qual Quant 48(5):2881–2898CrossRefGoogle Scholar
  48. Kumar RR (2014b) Exploring the nexus between tourism, remittances and growth in Kenya. Qual Quant 48(3):1573–1588CrossRefGoogle Scholar
  49. Kumar RR, Kumar R (2012) Exploring the nexus between information and communications technology, tourism and growth in Fiji. Tour Econ 18(2):359–371CrossRefGoogle Scholar
  50. Kumar RR, Stauvermann PJ (2014) Exploring the effects of remittances on Lithuanian economic growth. Eng Econ 25(3):250–260CrossRefGoogle Scholar
  51. Kumar RR, Stauvermann PJ (2016) The linear and non-linear relationship between of tourism demand and output per worker: a study of Sri Lanka. Tour Manag Perspect 19:109–120CrossRefGoogle Scholar
  52. Kumar RR, Stauvermann PJ, Patel A, Kumar N, Prasad S (2016) Exploring the nexus between tourism and output in Cook Islands: an ARDL bounds approach. Soc Indic Res 128(3):1085–1101CrossRefGoogle Scholar
  53. Kuznets S. (1934). National income. 1929–1932. NBER, pp 1–12Google Scholar
  54. Kwiatkowski D, Phillips PC, Schmidt P, Shin Y (1992) Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? J Econom 54(1):159–178CrossRefGoogle Scholar
  55. Lanza A, Pigliaru F (2000) Why are tourism countries small and fast-growing? In: Lanza A, Pugliaru F (eds) Tourism and sustainable economic development. Springer, US, pp 57–69CrossRefGoogle Scholar
  56. Lee CC, Chang CP (2008) Tourism development and economic growth: a closer look at panels. Tour Manag 29(1):180–192CrossRefGoogle Scholar
  57. Lewis AW (1954) Economic development with unlimited supplied of labour. Manch Sch 28(2):139–191CrossRefGoogle Scholar
  58. MacKinnon JG (1996) Numerical distribution functions for unit root and cointegration tests. J Appl Econom 11(6):601–618CrossRefGoogle Scholar
  59. Massidda C, Mattana P (2013) A SVECM analysis of the relationship between international tourism arrivals, GDP and trade in Italy. J Travel Res 52(1):93–105CrossRefGoogle Scholar
  60. McKinnon RI (1964) Foreign exchange constraints in economic development and efficient aid allocation. Econ J 74(294):388–409CrossRefGoogle Scholar
  61. Myrdal G (1957) Economic theory and under-developed regions. Duckworth, LondonGoogle Scholar
  62. Narayan PK, Narayan S, Prasad A, Prasad BC (2010) Tourism, and economic growth: a panel data analysis for Pacific Island countries. Tour Econ 16(1):169–183CrossRefGoogle Scholar
  63. Nordhaus WD, Tobin J (1972) Is growth obsolete?. In: Economic research: retrospect and prospect, volume 5, Economic Growth. NBER, pp 1–80. http://www.nber.org/chapters/c7620.pdf
  64. Nowak J-J, Sahli M, Cortés-Jiménez I (2007) Tourism, capital good imports and economic growth: theory and evidence for Spain. Tour Econ 13(4):515–536CrossRefGoogle Scholar
  65. Nurske R (1953) Problems of capital formation in underdeveloped countries. Oxford University Press, New YorkGoogle Scholar
  66. Oh CO (2005) The contribution of tourism development to economic growth in the Korean economy. Tour Manag 26(1):39–44CrossRefGoogle Scholar
  67. Pablo-Romero MDP, Molina JA (2013) Tourism and economic growth: a review of empirical literature. Tour Manag Perspect 8:28–41CrossRefGoogle Scholar
  68. Payne JE, Mervar A (2010) Research note: the tourism–growth nexus in Croatia. Tour Econ 16(4):1089–1094CrossRefGoogle Scholar
  69. Pesaran MH, Shin Y, Smith R (2001) Bounds testing approaches to the analysis of level relationships. Journal of Applied Econom 16(3):289–326CrossRefGoogle Scholar
  70. Phillips PC, Perron P (1988) Testing for a unit root in time series regression. Biometrika 75(2):335–346CrossRefGoogle Scholar
  71. Prebisch R (1950) The economic development of Latin America and its principal problems. United Nations, New YorkGoogle Scholar
  72. Proença S, Soukiazis E (2008) Tourism as an alternative source of regional growth in Portugal: a panel data analysis at NUTS II and III levels. Port Econ J 7(1):43–61CrossRefGoogle Scholar
  73. Rao BB (2007) Estimating short and long-run relationships: a guide for the applied economist. Appl Econ 39(13):1613–1625CrossRefGoogle Scholar
  74. Rao BB (2010) Estimates of the steady state growth rates for selected Asian countries with an extended Solow model. Econ Model 27(1):46–53CrossRefGoogle Scholar
  75. Ravinthirakumaran K, Selvanathan EA, Selvanathan S, Singh T (2015) Determinants of foreign direct investment in Sri Lanka. South Asia Econ J 16(2):233–256CrossRefGoogle Scholar
  76. Rosenstein-Rodan PN (1943) Problems of industrialisation of eastern and south-eastern Europe. Econ J 53(210/211):202–211CrossRefGoogle Scholar
  77. Rostow WW (1960) The five stages of growth-a summary. The stages of economic growth: a non-communist manifesto. Cambridge University Press, CambridgeGoogle Scholar
  78. Samaranayake HMS, Lantra N, (Chandi) Jayawardena C (2013) Forty six years of organised tourism in Sri Lanka (1966-2012). Worldw Hosp Tour Themes 5(5):423–441CrossRefGoogle Scholar
  79. Seetanah B (2011) Assessing the dynamic economic impact of tourism for island economies. Ann Tour Res 38(1):291–308CrossRefGoogle Scholar
  80. Shahbaz M, Islam F, Aamir N (2012) Is devaluation contractionary? empirical evidence for Pakistan. Econ Change Restruct 45(4):299–316CrossRefGoogle Scholar
  81. Shahbaz M, Kumar RR, Ivanov S, Loganathan N (2015) The nexus between tourism demand and output per capita, with the relative importance of trade openness and financial development: a study of Malaysia. Tour Econ. doi: 10.5367/te.2015.0505 Google Scholar
  82. Shahiduzzaman M, Layton A, Alam K (2015) On the contribution of information and communication technology to productivity growth in Australia. Econ Change Restruct 48(3–4):281–304CrossRefGoogle Scholar
  83. Sheldon PJ (1990) A review of tourism expenditure research. In: Cooper C (ed) Progress in tourism, recreation and hospitality management. Belhaven Press, London, pp 28–49Google Scholar
  84. Sheldon P (1997) Tourism information technologies. CAB, OxfordGoogle Scholar
  85. Siddique A, Selvanathan EA, Selvanathan S (2012) Remittances and economic growth: empirical evidence from Bangladesh, India and Sri Lanka. J Dev Stud 48(8):1045–1062CrossRefGoogle Scholar
  86. Sinclair MT (1998) Tourism and economic development: a survey. J Dev Stud 34(5):1–51CrossRefGoogle Scholar
  87. Singer HW (1950) The distribution of gains between investing and borrowing countries. Am Econ Rev 40(2):473–485Google Scholar
  88. Solow RM (1956) A contribution to the theory of economic growth. Quart J Econ 70(1):65–94CrossRefGoogle Scholar
  89. Srinivasan P, Kumar PS, Ganesh L (2012) Tourism and economic growth in Sri Lanka an ARDL bounds testing approach. Rom Econo J 45:211–226Google Scholar
  90. Sturm J-R (1998) Public capital expenditure in OECD countries: the causes and impact of the decline of public capital spending. Edgar Elgar, CheltenhamGoogle Scholar
  91. Tang CF, Tan EC (2015a) Tourism-led growth hypothesis in Malaysia: evidence based upon regime shift cointegration and time-varying Granger causality techniques. Asia Pac J Tour Res. doi: 10.1080/10941665.2014.998247 Google Scholar
  92. Tang CF, Tan EC (2015b) Does tourism effectively stimulate Malaysia’s economic growth? Tour Manag 46:158–163CrossRefGoogle Scholar
  93. Toda HY, Yamamoto T (1995) Statistical inferences in vector autoregressions with possibly integrated process. J Econom 66(1–2):225–250CrossRefGoogle Scholar
  94. Wickremasinghe GB, Ihalanayake R (2006) Causal relationship between tourism and economic growth in Sri Lanka: some empirical evidence. Working Paper Series WP2006.10, Victoria University, AustraliaGoogle Scholar
  95. World Bank (2015) World development indicators and global development finance. World Bank, WashingtonGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • Peter Josef Stauvermann
    • 1
  • Ronald Ravinesh Kumar
    • 2
    • 3
    • 4
    Email author
  • Syed Jawad Hussain Shahzad
    • 5
  • Nikeel N. Kumar
    • 6
  1. 1.Department of Global Business and EconomicsChangwon National UniversityChangwonRepublic of Korea
  2. 2.School of Accounting and FinanceThe University of the South PacificSuvaFiji
  3. 3.Bolton Business SchoolUniversity of BoltonBoltonUK
  4. 4.Leicester School of ManagementUniversity of LeicesterLeicesterUK
  5. 5.COMSATS Institute of Information TechnologyIslamabadPakistan
  6. 6.School of EconomicsThe University of FijiLautokaFiji

Personalised recommendations