Abstract:
The main objective of this study is two-fold. First, it aims to undertake a systematic and
comprehensive analysis of the performance of the Sri Lankan tourism sector using historical
data and policy documents and to present a historical narrative on tourism. Second, it aims to
analyse the effects of the post-war tourism boom on the Sri Lankan economy within an
economy-wide framework by developing a computable general equilibrium (CGE) model,
labelled as SLCGE-Tourism. In the process of achieving the above objectives the study
addressed two knowledge gaps related to Sri Lankan tourism as identified in the literature.
The first knowledge gap is that there is a lack of systematic historical analysis of Sri Lankan
tourism both in terms of policy and data. This study contributes significantly in addressing
this knowledge gap by undertaking a number of complementary analyses. Firstly, it
undertakes a systematic and comprehensive analysis of post-independence tourism promotion
strategies in the economic development process. It shows that Sri Lanka had many post-
independence advantages, especially given its strategic location in the Indian Ocean and on
the major air and sea routes between Europe and the Far East. However, it missed
opportunities due to inward-oriented development policies implemented by successive
governments until 1977 and the three decade long civil war and other political violence
ending in 2009
Secondly, it carries out two systematic econometric studies on tourism demand and volatility
within the Sri Lankan context by using well-recognised econometric techniques. In the first
econometric study, data on monthly tourism arrivals is used to model volatility of tourist
arrivals for the first time in the case of Sri Lanka and as such this represents a contribution to
the tourism literature in Sri Lanka. As generally accepted, and in common with many other
tourist destinations, the empirical results of this study demonstrate that the Sri Lankan
tourism industry is very sensitive to political violence, exchange rate changes, and seasonal
variations. The analysis suggests that significant increases in political violence lowered
tourist arrivals in Sri Lanka and created a substantial amount of volatility in tourism demand.
The second econometric study explores empirically whether the targets set in the recent
Tourism Development Strategy (TDS) by the Sri Lankan government are achievable or
realistic by using a simple econometric model. The econometric analysis suggests that tourist
arrivals to Sri Lanka would increase by 26 per cent per year if a peaceful environment can be
maintained in Sri Lanka. This is broadly consistent with the targets set out in the TDS
without the benefit of systematic modelling work.
The second knowledge gap was that there was a lack of an integrated economy-wide
modelling model capable of use for examining the impact of tourism on the Sri Lankan
economy. This study has addressed this knowledge gap by developing a tourism-focused
SLCGE–Tourism model. Its usefulness has been demonstrated by examining the economy-
wide effects of the recent tourism boom and associated policy targets on the Sri Lankan
economy in the second part of the thesis. The projected results of the model support the view
that tourism can play a major role in the post-war development in Sri Lanka in terms of
economic growth and employment generation. However, both the macro and sectoral results
demonstrate that the expansion of tourism will not assist the economy without imposing some
negative impacts on some other sectors in the economy. It is clear from the results of policy
simulations carried out with the model that a tourism boom may lead to ‘Dutch disease’ type
effects. The manufacturing export sectors, such as wearing apparel, may suffer as a result of
an appreciation of the real exchange rate due to the tourism boom. The results also
demonstrate that positive effects of a tourism boom on the economy would be much stronger
if supply side constraints facing the tourism sector were able to be removed (or at least
reduced significantly). The empirical findings of this study have important policy
implications and the modelling of the Sri Lankan tourism sector using the newly developed
tourism-focused SLCGE–Tourism model opens up new areas for future research.