Impact of Japanese Official Development Assistance on Economic Growth and Development in Sri Lanka

Abstract

Debt burden over foreign loans and economic impact of foreign-funded development projects have been much discussed and debated issue in the recent past. The debate on debt burden is mostly centered on the sheer size of the debt owned by development partners, not specifically on the generosity and impact of Official Development Assistance (ODA) offered by different development partners. Addressing these gaps, this study analyses generosity of Japanese ODA and its impact on economic growth and development in Sri Lanka. This study employs both descriptive and regression analyses for data analysis. Japanese ODA to Sri Lanka has grown at an average annual rate of around 6 per cent (in current US$ terms). Sri Lanka has been one of the priority countries for Japanese ODA largely due to the cordial relationship the two countries has maintained over the last several decades. Reflecting the unique future of Japanese ODA, a greater majority of assistance has channeled into economic infrastructure development/improvements in the country. More importantly, Japanese ODA has contained higher grant element compared to ODA offered by other major development partners such as ADB, World Bank, and China. The regression analysis of the study clearly indicates that there is a strong positive relationship between Japanese ODA and economic growth and development in the country. The findings are consistent with the finding of previous research studies. These imply that social and economic infrastructures developed with assistance of Japanese ODA has contributed to economic growth and development in the country. This impact was further supported through the micro-level evidence found in ex-post impact evaluations and third party impact evaluations. Overall evidences clearly reflect that Japanese ODA has not contributed to current foreign debt burden faced by the country.