DETERMINANTS OF INTERNATIONAL TOURISM DEMAND FOR SRI LANKA

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.