Investigating Growth Performance of Sri Lanka

Abstract

This study starts with an analysis of macroeconomic determinants on growth in the case of Sri Lanka, deploying the Autoregressive Distributed Lag (ARDL) approach using annual data from 1960 to 2018. Key findings of the study reveal that utilising the available policy spaces to create an investment conducive climate and to support exports is essential while revisiting the imports structure to understand the necessary potential improvements. Unexpectedly, total employment does not show a significant influence on the movement in real GDP, emphasizing the challenging need for labour market reforms for enhancing workplace efficiency and proper labour management. Results show that the civil war arrested the revival of the economy and rejected the tourism-led growth hypothesis. Beyond the ARDL model, a Generalised Least Squares Panel Data model is employed, to analyse the impact of regional integration in the South Asian context on the growth of the Sri Lankan economy. Results of the Fixed Effects models prove that trade liberalisation drives the growth of panel economies and the existence of a non-linear positive relationship between export concentration and real per capita GDP growth. Accordingly, one could conclude that the growth of SAARC economies could flourish with trading amongst themselves, accompanied by free trade agreements.