Terrorism and Tourism Demand in Terror Affected Island

Abstract

Sri Lanka is an island and is becoming an attractive tourist destination in South Asia. It has famous beaches, mountainous regions, many colonise features, UNESCO world heritage sites, wild life, traditional festivals, and unparalleled climate generate extra topographies to attract more and more international tourists. However, Sri Lanka is badly affected by terrorism. Henceforth, this study examines the impact terrorism on inbound tourism along with other important factors, for instance, FDI and World GDP. Long run estimates are obtained through DOLS after confirmation of cointegration. World GDP and FDI have positive effect on tourism. Terrorism has negative impact on inbound tourism in Sri Lanka. The tourism in Sri Lanka remained stagnant between 1978 and 2009 because of terrorism. Since 2009, there is sharped increase in tourism arrivals as a result of remarkable decrease in terrorism activities. Results of VECM confirmed causality from terrorism to tourism. This finding revealed that terrorism is badly affecting tourism in Sri Lanka. Similarly, terrorism is affecting FDI inflows to Sri Lanka. Moreover, these results confirmed that tourism and FDI are engaged in complementary effect with each other. If Sri Lanka enabled itself well to maintain peace in country its effect will be multiple. Elimination of terrorism will improve tourism development which in turn will bring economic development as travel and tourism industry contributes 11.1 % to GDP, and 10 % to country employment. Similarly, better security situation will also help in attracting more FDI. Besides this, FDI and private investment has to be encouraged to build new hotel rooms to accommodate influx of tourists.