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.
Highlights
Economic activities from both the production and supply aspect and the consumption and demand aspect highly depend on the transportation sector
The aim of this study was to examine the relationship between air transportation and economic growth in Sri Lanka
Economic growth is measured by gross domestic production (GDP), whilst demand for aviation is measured by ‘total passengers movements (TPM)
Summary
Economic activities from both the production and supply aspect and the consumption and demand aspect highly depend on the transportation sector. No attention is given to an empirical analysis of the relationship between economic growth and air transportation in Sri Lanka, which justified the purpose of this research. This study employs ‘total passenger movements’ (TPM) and to measure economic growth, gross domestic production (GDP) in constant prices is used. Econometric tests such as unit root tests and test of cointegration proposed by Johansen (1988) are used as mathematical analysis tools and techniques. This article examines the relationship between air transportation and economic growth by employing the Johansen cointegration approach for the long run and the standard vector auto-regression (VAR) method for the short run. Relatively little attention has been devoted to this phenomenon
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