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.
Highlights
There is a consensus that economic growth increases the wealth of a country by alleviating poverty
This study aims to analyse the effect of some selected leading macroeconomic variables, including export, import, capital formation, and earnings from tourism and employment, on the growth of the Sri Lankan economy
This paper introduces a Generalised Least Square Panel Data model to study the regional growth of selected South Asian economies which belong to the South Asian Association for Regional Corporation (SAARC), and this distinguishes this study from others on the economic growth of Sri Lanka
Summary
There is a consensus that economic growth increases the wealth of a country by alleviating poverty. Growth prioritising inward looking policies were replaced by the outward looking policy package through economic liberalisation in 1977, that aimed at accelerating the economic growth and income generation by promoting exports and private sector investments, while opening avenues to reach external markets. Among other factors, this accelerated process of economic growth followed by privatisation policies introduced in the 1990s helped to transform the agriculture-based rural economy into a service-based modern economy, over time
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