Theoretical and empirical evidence proves that prolonged fiscal expansions contribute to current account imbalances and hence, there exists a positive-long run relationship between budget deficits and current account deficits. This relationship is referred to as ‘twin deficit hypothesis.’ Significant fiscal expansions and external imbalances, which caused macroeconomic instability in a large number of advanced countries and emerging countries, have motivated examining the issue of twin deficits. Like many other emerging countries, for a long period of time, Sri Lankan economy has been experiencing persistently high budget deficits and current account deficits. In this study, we attempt to explore the twin deficit hypothesis interacting with key financial variables using both annual and quarterly data for Sri Lanka and employing multivariate empirical methodology. We find evidence for long run relationships between twin deficits in Sri Lanka. At the same time, we detect unidirectional causation between twin deficits, which enables into draw several policy implications. DOI: http://dx.doi.org/10.4038/ss.v41i1.4683 Staff Studies – Volume 41 Numbers 1 & 2, 41-87
{"title":"An Empirical Investigation of the Twin Deficit Hypothesis: Evidence from Sri Lanka","authors":"Anil Perera, Erandi Liyanage","doi":"10.4038/SS.V41I1.4683","DOIUrl":"https://doi.org/10.4038/SS.V41I1.4683","url":null,"abstract":"Theoretical and empirical evidence proves that prolonged fiscal expansions contribute to current account imbalances and hence, there exists a positive-long run relationship between budget deficits and current account deficits. This relationship is referred to as ‘twin deficit hypothesis.’ Significant fiscal expansions and external imbalances, which caused macroeconomic instability in a large number of advanced countries and emerging countries, have motivated examining the issue of twin deficits. Like many other emerging countries, for a long period of time, Sri Lankan economy has been experiencing persistently high budget deficits and current account deficits. In this study, we attempt to explore the twin deficit hypothesis interacting with key financial variables using both annual and quarterly data for Sri Lanka and employing multivariate empirical methodology. We find evidence for long run relationships between twin deficits in Sri Lanka. At the same time, we detect unidirectional causation between twin deficits, which enables into draw several policy implications. DOI: http://dx.doi.org/10.4038/ss.v41i1.4683 Staff Studies – Volume 41 Numbers 1 & 2, 41-87","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"37 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128572941","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates the long-run relationship and causality between real per capita GDP, foreign direct investment (FDI) and the level of the infrastructure in Sri Lanka over the period 1980 to 2011. Level of the infrastructure has been measured by using a summary measure based on principal component analysis. Analysis shows that there is a long-run relationship between real per capita GDP, foreign direct investment (FDI) and the level of the infrastructure. The empirical results further confirm the unidirectional causality from level of the infrastructure to FDI. DOI: http://dx.doi.org/10.4038/ss.v41i1.4684 Staff Studies – Volume 41 Numbers 1 & 2, 89-115
{"title":"Economic Impact of Foreign Direct Investment in Sri Lanka","authors":"Bhpk Thilakaweera","doi":"10.4038/SS.V41I1.4684","DOIUrl":"https://doi.org/10.4038/SS.V41I1.4684","url":null,"abstract":"This paper investigates the long-run relationship and causality between real per capita GDP, foreign direct investment (FDI) and the level of the infrastructure in Sri Lanka over the period 1980 to 2011. Level of the infrastructure has been measured by using a summary measure based on principal component analysis. Analysis shows that there is a long-run relationship between real per capita GDP, foreign direct investment (FDI) and the level of the infrastructure. The empirical results further confirm the unidirectional causality from level of the infrastructure to FDI. DOI: http://dx.doi.org/10.4038/ss.v41i1.4684 Staff Studies – Volume 41 Numbers 1 & 2, 89-115","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123691675","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper compares and contrasts borrowing patterns of households at the bottom of the pyramid with those of the non-poor in the seven provinces, Western, Central, Southern, North Western, North Central, Uva, and Sabaragamuwa in order to determine the features required to be incorporated in microfinance products to make them low-end market friendly. The information reveals that regional disparity is much greater than income wise disparity in borrowing patterns pointing to the fact that there is no strong case for designing specific loan products for the poor. Overall however, as expected, the poor had lesser access to institutional credit and expended proportionately more of their borrowing for consumption and other non-productive purposes than the non-poor. However, financial inclusion among the poor was found to be much greater in this country when compared to other countries in the region. Despite high financial inclusion among the poor, both the poor and the non-poor tend to borrow from the informal sector as well, particularly from friends and relatives. The poor in the Southern Province had greater dependence on informal sector credit despite the high financial inclusion reported from that province. Figures on financial inclusion indicate that the number of households still to be reached by poverty alleviation microfinance programmes in these seven provinces was below 300,000. Resource requirement for initial loans to be provided to these persons in order to enroll them in a poverty alleviation microfinance programme was estimated to be less than Rs. 6 billion. DOI: http://dx.doi.org/10.4038/ss.v39i1.3153 Staff Studies Vol.39(1&2) 2009 pp.37-67
{"title":"A Regional Analysis of Credit Needs and the Unmet Demand for Microfinance","authors":"A. D. Alwis","doi":"10.4038/SS.V39I1.3153","DOIUrl":"https://doi.org/10.4038/SS.V39I1.3153","url":null,"abstract":"This paper compares and contrasts borrowing patterns of households at the bottom of the pyramid with those of the non-poor in the seven provinces, Western, Central, Southern, North Western, North Central, Uva, and Sabaragamuwa in order to determine the features required to be incorporated in microfinance products to make them low-end market friendly. The information reveals that regional disparity is much greater than income wise disparity in borrowing patterns pointing to the fact that there is no strong case for designing specific loan products for the poor. Overall however, as expected, the poor had lesser access to institutional credit and expended proportionately more of their borrowing for consumption and other non-productive purposes than the non-poor. However, financial inclusion among the poor was found to be much greater in this country when compared to other countries in the region. Despite high financial inclusion among the poor, both the poor and the non-poor tend to borrow from the informal sector as well, particularly from friends and relatives. The poor in the Southern Province had greater dependence on informal sector credit despite the high financial inclusion reported from that province. Figures on financial inclusion indicate that the number of households still to be reached by poverty alleviation microfinance programmes in these seven provinces was below 300,000. Resource requirement for initial loans to be provided to these persons in order to enroll them in a poverty alleviation microfinance programme was estimated to be less than Rs. 6 billion. DOI: http://dx.doi.org/10.4038/ss.v39i1.3153 Staff Studies Vol.39(1&2) 2009 pp.37-67","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115108456","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It is widely believed that the short run effect of exchange rate depreciation on trade balance is different from the long run. In the short run, first, the trade balance deteriorates before resulting in an improvement, suggesting a J-curve pattern. Most of the empirical studies have employed aggregate trade data, while recent studies have used bilateral trade data. These studies are mostly between industrial countries, a few developing countries, but none so far for Sri Lanka. Hence, in this study, the impact of real depreciation of Sri Lankan Rupee (SLR) on the trade balance in the short run and the long run has been examined, employing bilateral trade data between Sri Lanka and its six major trading partners using the autoregressive distributed lagged (ARDL) model. The results reveal that the trade balance between Sri Lanka and its trading partners does not support the J-curve phenomenon, and also it does not have any specific pattern in response to depreciation of real exchange rate. DOI: http://dx.doi.org/10.4038/ss.v39i1.3154 Staff Studies Vol.39(1&2) 2009 pp.69-85
{"title":"Bilateral J-curve between Sri Lanka and its major trading partners","authors":"W. Perera","doi":"10.4038/SS.V39I1.3154","DOIUrl":"https://doi.org/10.4038/SS.V39I1.3154","url":null,"abstract":"It is widely believed that the short run effect of exchange rate depreciation on trade balance is different from the long run. In the short run, first, the trade balance deteriorates before resulting in an improvement, suggesting a J-curve pattern. Most of the empirical studies have employed aggregate trade data, while recent studies have used bilateral trade data. These studies are mostly between industrial countries, a few developing countries, but none so far for Sri Lanka. Hence, in this study, the impact of real depreciation of Sri Lankan Rupee (SLR) on the trade balance in the short run and the long run has been examined, employing bilateral trade data between Sri Lanka and its six major trading partners using the autoregressive distributed lagged (ARDL) model. The results reveal that the trade balance between Sri Lanka and its trading partners does not support the J-curve phenomenon, and also it does not have any specific pattern in response to depreciation of real exchange rate. DOI: http://dx.doi.org/10.4038/ss.v39i1.3154 Staff Studies Vol.39(1&2) 2009 pp.69-85","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"88 11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127996649","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper attempts to examine the main determinants of inflation in Sri Lanka over the period 1980 – 2005 using Vector Autoregressive analysis. The results presented in this paper indicate that money supply growth and rice price increases are the main determinants of inflation in Sri Lanka in the long run. In contrast, It is evident that exchange rate depreciation and out put gap have no statistically significant effect on inflation. In the short run, rice price is the most important variable as it is a totally endogenous variable. However, money growth and exchange rate are not so important variables as they are weakly exogenous in the adjustment process. Output gap does not have a statistically significant effect on inflation in both the long run and the short run. DOI: http://dx.doi.org/10.4038/ss.v39i1.3151 Staff Studies Vol.39(1&2) 2009 pp.1-14
{"title":"The Main Determinants of Inflation in Sri Lanka: A VAR based Analysis","authors":"H. P. G. S. Ratnasiri","doi":"10.4038/SS.V39I1.3151","DOIUrl":"https://doi.org/10.4038/SS.V39I1.3151","url":null,"abstract":"This paper attempts to examine the main determinants of inflation in Sri Lanka over the period 1980 – 2005 using Vector Autoregressive analysis. The results presented in this paper indicate that money supply growth and rice price increases are the main determinants of inflation in Sri Lanka in the long run. In contrast, It is evident that exchange rate depreciation and out put gap have no statistically significant effect on inflation. In the short run, rice price is the most important variable as it is a totally endogenous variable. However, money growth and exchange rate are not so important variables as they are weakly exogenous in the adjustment process. Output gap does not have a statistically significant effect on inflation in both the long run and the short run. DOI: http://dx.doi.org/10.4038/ss.v39i1.3151 Staff Studies Vol.39(1&2) 2009 pp.1-14","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123272765","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Interest rate is used as a monetary policy instrument in most countries. Sri Lanka too, uses interest rates as one of the policy instruments to achieve the objectives of the Central Bank. In this paper, the relationships between policy rates and other macroeconomic variables are identified and empirical estimations are carried out to find out to what extent the interest rates could be used to manage macroeconomic variables, based on which some policy implications are suggested. DOI: http://dx.doi.org/10.4038/ss.v39i1.3152 Staff Studies Vol.39(1&2) 2009 pp.15-36
{"title":"Interest Rate as a Policy Instrument – Recent Experience of Sri Lanka","authors":"W. Hemachandra","doi":"10.4038/SS.V39I1.3152","DOIUrl":"https://doi.org/10.4038/SS.V39I1.3152","url":null,"abstract":"Interest rate is used as a monetary policy instrument in most countries. Sri Lanka too, uses interest rates as one of the policy instruments to achieve the objectives of the Central Bank. In this paper, the relationships between policy rates and other macroeconomic variables are identified and empirical estimations are carried out to find out to what extent the interest rates could be used to manage macroeconomic variables, based on which some policy implications are suggested. DOI: http://dx.doi.org/10.4038/ss.v39i1.3152 Staff Studies Vol.39(1&2) 2009 pp.15-36","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116044464","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Garment industry has been the Sri Lanka's largest gross export earner since 1986 and accounted for more than 52 per cent of total export earnings of the country. It is also the country's largest net foreign exchange earner since 1992. Sri Lanka as a garment exporter has shown signs of improvement in many respects yet even at present, the quota system covers more than 52 per cent of the country's garment exports. However, Sri Lanka depends on quotas much less than other South Asian countries. Besides, dependence on the quota system, there are weaknesses in the domestic industrial and export structure, labour markets rigidities and strong competition in international markets. They need urgent attention for survival in a quota free market. Therefore, the future of the garment industry will depend on the competitive edge that Sri Lanka has over her competitors in Asia, Latin and Central America and emerging producers in Africa and Eastern Europe who benefit from favourable trading arrangements with major markets. This analysis shows that, phasing out of quotas will close down nearly fifty per cent of existing garment factories, as they loss that protection. However, some of the medium and large scale factories are expected to survive exploiting opportunities in the free market. Sri Lanka's garment industry is highly concentrated in large scale factories. That concentration will save a large part of export earnings while preserving job opportunities. However, in the short-run there will be an adverse impact on employment. (JEL F14, L11) DOI: http://dx.doi.org/10.4038/ss.v33i1.1246 Staff Studies Volume 33 Numbers 1& 2 2003 p.33-72
{"title":"Garment Industry in Sri Lanka Challenges, Prospects and Strategies","authors":"Rupa Dheerasinghe","doi":"10.4038/SS.V33I1.1246","DOIUrl":"https://doi.org/10.4038/SS.V33I1.1246","url":null,"abstract":"Garment industry has been the Sri Lanka's largest gross export earner since 1986 and accounted for more than 52 per cent of total export earnings of the country. It is also the country's largest net foreign exchange earner since 1992. Sri Lanka as a garment exporter has shown signs of improvement in many respects yet even at present, the quota system covers more than 52 per cent of the country's garment exports. However, Sri Lanka depends on quotas much less than other South Asian countries. Besides, dependence on the quota system, there are weaknesses in the domestic industrial and export structure, labour markets rigidities and strong competition in international markets. They need urgent attention for survival in a quota free market. Therefore, the future of the garment industry will depend on the competitive edge that Sri Lanka has over her competitors in Asia, Latin and Central America and emerging producers in Africa and Eastern Europe who benefit from favourable trading arrangements with major markets. This analysis shows that, phasing out of quotas will close down nearly fifty per cent of existing garment factories, as they loss that protection. However, some of the medium and large scale factories are expected to survive exploiting opportunities in the free market. Sri Lanka's garment industry is highly concentrated in large scale factories. That concentration will save a large part of export earnings while preserving job opportunities. However, in the short-run there will be an adverse impact on employment. (JEL F14, L11) DOI: http://dx.doi.org/10.4038/ss.v33i1.1246 Staff Studies Volume 33 Numbers 1& 2 2003 p.33-72","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133869529","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Economic liberalization enhances the productivity and efficiency of productive resources of a country to the extent that the economy has room to grow. In high growth and developed countries the contribution of agriculture to the per capita income has decreased with increasing per capita income in recent decades. In Sri Lanka, the productivity in the agriculture sector has been negative, while industry and services sectors have contributed positively. This paper argues that liberalization of agriculture by way of lower tariff barriers may not result in productive gains in the sector, but that may incur serious losses arising from political economy dimensions. The paper also shows that the continuing phenomenon of falling global commodity prices may result in endogenous generation of price competition in agriculture sector, that may replace any exogenous tariff reductions intended for ensuring price competition, provided non-tariff barriers are removed. Liberalization of industry and services sectors may also bring in pressure on agriculture sector by way of wage increases which force agriculture sector to become competitive. Thus, an optimal policy for the liberalization of agriculture is to remove all non-tariff barriers while maintaining tariff and para-tariff barriers at fixed levels to allow the evolution of endogenous price competition which may eliminate costs arising from political economy dimensions. (JEL F13, 013) DOI: http://dx.doi.org/10.4038/ss.v33i1.1244 Staff Studies Volume 33 Numbers 1& 2 2003 p.1-13
{"title":"A Policy Rule for the Liberalization of Agriculture in Sri Lanka","authors":"H. Thenuwara","doi":"10.4038/SS.V33I1.1244","DOIUrl":"https://doi.org/10.4038/SS.V33I1.1244","url":null,"abstract":"Economic liberalization enhances the productivity and efficiency of productive resources of a country to the extent that the economy has room to grow. In high growth and developed countries the contribution of agriculture to the per capita income has decreased with increasing per capita income in recent decades. In Sri Lanka, the productivity in the agriculture sector has been negative, while industry and services sectors have contributed positively. This paper argues that liberalization of agriculture by way of lower tariff barriers may not result in productive gains in the sector, but that may incur serious losses arising from political economy dimensions. The paper also shows that the continuing phenomenon of falling global commodity prices may result in endogenous generation of price competition in agriculture sector, that may replace any exogenous tariff reductions intended for ensuring price competition, provided non-tariff barriers are removed. Liberalization of industry and services sectors may also bring in pressure on agriculture sector by way of wage increases which force agriculture sector to become competitive. Thus, an optimal policy for the liberalization of agriculture is to remove all non-tariff barriers while maintaining tariff and para-tariff barriers at fixed levels to allow the evolution of endogenous price competition which may eliminate costs arising from political economy dimensions. (JEL F13, 013) DOI: http://dx.doi.org/10.4038/ss.v33i1.1244 Staff Studies Volume 33 Numbers 1& 2 2003 p.1-13","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132898152","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Revenue mobilisation is an important goal of tax reform. In this regard, tax elasticity - the built-in responsiveness of revenues to changes in income - constitutes an essential ingredient for tax policy formulation. This paper utilises a time series approach to empirically estimate tax elasticities for Sri Lanka for the period 1960-1994. Tax elasticities are computed for income, turnover, excise, import and total taxes on a short run and long run basis for the pre-reform as well as the post-reform periods. All elasticity coefficients reveal a low responsiveness of taxes to income growth with estimates registering less than unity in most cases. The tax buoyancies computed for the same taxes show that tax revenues have been maintained through discretionary measures. (JEL H21, H22) DOI: http://dx.doi.org/10.4038/ss.v33i1.1247 Staff Studies Volume 33 Numbers 1& 2 2003 p.73-100
{"title":"The Measurement of Tax Elasticity in Sri Lanka: A Time Series Approach","authors":"Yuthika Indraratna","doi":"10.4038/SS.V33I1.1247","DOIUrl":"https://doi.org/10.4038/SS.V33I1.1247","url":null,"abstract":"Revenue mobilisation is an important goal of tax reform. In this regard, tax elasticity - the built-in responsiveness of revenues to changes in income - constitutes an essential ingredient for tax policy formulation. This paper utilises a time series approach to empirically estimate tax elasticities for Sri Lanka for the period 1960-1994. Tax elasticities are computed for income, turnover, excise, import and total taxes on a short run and long run basis for the pre-reform as well as the post-reform periods. All elasticity coefficients reveal a low responsiveness of taxes to income growth with estimates registering less than unity in most cases. The tax buoyancies computed for the same taxes show that tax revenues have been maintained through discretionary measures. (JEL H21, H22) DOI: http://dx.doi.org/10.4038/ss.v33i1.1247 Staff Studies Volume 33 Numbers 1& 2 2003 p.73-100","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130504045","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates (a) the validity of financial deepening paradigms in the context of Sri Lanka and (b) the effects of financial deepening on savings and investment that promote growth. In investigating financial deepening in Sri Lanka the paper uses three paradigms i.e., Keynesian, McKinnon-Shaw and neo-structuralist. After examining these three versions the paper argues that an improved model which combines both Keynesian and McKinnon-Shaw versions produces a model more successful in explaining the characteristics of financial deepening in Sri Lanka. The effects of financial deepening on savings and investment were studied using this improved model. Results show that there are several factors other than interest rate influencing financial deepening in Sri Lanka. The study confirms the neo-structuralists' hypothesis which claims that financial deepening has reduced provision of credit to the informal sector. The paper also evaluates the effects of policy changes introduced since 1977 on financial deepening in Sri Lanka. DOI: http://dx.doi.org/10.4038/ss.v33i1.1245 Staff Studies Volume 33 Numbers 1& 2 2003 p.15-32
{"title":"Financial Deepening and its Implications on Savings and Investments in Sri Lanka","authors":"W. Hemachandra","doi":"10.4038/SS.V33I1.1245","DOIUrl":"https://doi.org/10.4038/SS.V33I1.1245","url":null,"abstract":"This paper investigates (a) the validity of financial deepening paradigms in the context of Sri Lanka and (b) the effects of financial deepening on savings and investment that promote growth. In investigating financial deepening in Sri Lanka the paper uses three paradigms i.e., Keynesian, McKinnon-Shaw and neo-structuralist. After examining these three versions the paper argues that an improved model which combines both Keynesian and McKinnon-Shaw versions produces a model more successful in explaining the characteristics of financial deepening in Sri Lanka. The effects of financial deepening on savings and investment were studied using this improved model. Results show that there are several factors other than interest rate influencing financial deepening in Sri Lanka. The study confirms the neo-structuralists' hypothesis which claims that financial deepening has reduced provision of credit to the informal sector. The paper also evaluates the effects of policy changes introduced since 1977 on financial deepening in Sri Lanka. DOI: http://dx.doi.org/10.4038/ss.v33i1.1245 Staff Studies Volume 33 Numbers 1& 2 2003 p.15-32","PeriodicalId":362386,"journal":{"name":"Staff Studies","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-10-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121673691","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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