Abstract:
This paper's primary goal is to analyse the changing factors of international tourism
demand for Sri Lanka using the Vector Error Correction Model (VECM), impulse
response model and granger causality model employing quarterly data for the period
of 2013-2023. A tourism demand function has been constructed with variables namely
world income, exchange rate, inflation, transport costs and dummy variables for civil
conflict/political stability and COVID 19 pandemic. This study finds that both
demand-side factors (such as world income and exchange rate) and supply-side
factors (including inflation and travel costs), along with dummy variables; civil
conflict/political instability and COVID 19 pandemic significantly influence changes
in tourism demand in Sri Lanka. Increase in world income has a significant positive
impact on tourism demand while depreciation of exchange rate makes the destination
more attractive to tourists in the long run and short run. Increase in both inflation
and travel cost have negative impact on tourist arrivals while dummy variables show
strong negative effects on tourism demand. These findings would provide valuable
insights for policymakers to boost Sri Lanka's tourist earnings in the long run.
