Air passenger movements and economic growth in Sri Lanka: Co-integration and causality analysis

Abstract

Background: It is generally recognised that air passenger transport contributes to the economic growth in developed and developing countries. Hence, air transportation is used as a policy instrument for stimulating economic growth. Air transport contributes to the economic welfare of the nation and long-term economic growth throughout trade and tourism. However, relatively little attention has been devoted to this phenomenon.

Objectives: The aim of this research article was to investigate the aviation-centric growth hypothesis for Sri Lanka by testing causation between aviation and economic growth.

Method: Using time series data over a period of 37 years (1983–2019), this study employed Johansen cointegration test methods, followed by Granger’s causality tests.

Results: The results of this study confirm that there is no long-run relationship between air transportation and economic growth in Sri Lanka. However, the results show that there is a short-run unidirectional Granger causality, which runs from economic growth to total passenger movements.

Conclusion: It can be concluded from the findings that they disprove the aviation-centric growth hypothesis and instead suggest that air transport does not play a significant role in the promotion of Sri Lanka’s economic growth. Furthermore, the existence of unidirectional causality from economic growth to air transport and the recognised time lags of 2–3 years would guide government and policymakers to manage resources properly and allocate resources efficiently for the sectors, which accelerate economic growth in Sri Lanka.