Investigation on the Efficiency of International Tourism Industry in Sri Lanka: An Application of DEA Production Frontier Approach

Abstract

This study attempted at evaluating the performance of international tourism industry in Sri Lanka in terms of technical efficiency with the use of nonparametric production frontier approach which is based on data envelopment analysis (DEA). Accordingly, different DEA specifications were employed related to different combinations of outcomes of tourism industry. Official tourism receipts, direct employment generation and foreign guest nights were considered as outputs while number of beds / number of hotel rooms, international tourist arrivals and all items tourist price index was treated as inputs into the different models. Finally, a single model was estimated amalgamating all three different outputs into one model for the sample period. Findings revealed that the tourism industry has been operating inefficiently within the last three decades and have possibilities for further improvements altering the inputs of the industry since DEA efficiency scores are relative measures. It further revealed that investment on construction work such as construction of more hotels is wastage of resources and some strategies should be formulated to increase the room occupancy rate and control inflation on tourism activities in terms of the tourist prices. Marketing or promotional strategies need to be initiated to increase international visitor arrivals as well as average room occupancy rates since the industry is prevailing increasing returns to scale efficiency.