Intertemporal relationship between tourism demand and environmental quality in Sri Lanka

Abstract

The aim of this study is to investigate the intertemporal relationship between tourism demand and environmental quality in Sri Lanka for the period of 1970-2018. In this study, both exploratory data analysis and inferential data analysis tools were employed. The exploratory data analysis technique involves the tools of scatter plots with confidence ellipse, whereas the inferential data analysis technique consists of the ADF unit root test, the autoregressive distributed lag (ARDL) Bounds cointegration technique, the Pairwise Granger Causality test, and the variance decomposition test. The test result of exploratory data analysis confirms that tourism demand has a positive relationship with environmental degradation. The ADF unit root test result indicates that the variables used in this study are in mixed order. The ARDL Bounds cointegration test result confirms that tourism demand in Sri Lanka causes s the environmental quality to decline in both the long-run and the short-run. Further, the causality test result reveals that tourism demand leads to environmental degradation. The variance decomposition analysis finds that innovation in tourism demand increasingly step by step contributes to forecasting error variance in the environmental quality till the 10^th period.