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

Tourism is regarded as a dynamic economic industry in the world, specifically for developing countries like Sri Lanka. Studies of the causality between three variables are rare and to bridge that gap, this research examines the causal relationship among International Tourist Arrivals (ITA), Foreign Direct Investment (FDI) and Gross Domestic Product (GDP) for Sri Lanka. Unit root test, Co-integration test, optimal lag length, Vector Auto-Regression (VAR) and Granger causality are employed to investigate the relationship between GDP, FDI and ITA. Annual data from 1985 to 2014 compiled by the Central Bank of Sri Lanka and World Bank were used in this study. GDP is measured by US$ millions', ITA by the amount of tourism visitors, million people, and FDI by FDI inward, US$ millions'. The results reveal that there is no co-integration among GDP, ITA and FDI. Correspondently, Granger causality analysis finds out the short-run influence of GDP on FDI and ITA