Abstract
International trade has become the engine of growth of world economies over the past few decades and main objective of this research is to investigate the causal relationship between trade liberalization and economic growth of Sri Lanka. The study is mainly based on secondary data collected from the Central Bank of Sri Lanka and in achieving the main objective data were collected on a specific time interval before and after the trade liberalization of the country. The study time period selected is from 1960 to 2012. To identify the impacts of trade liberalization, total time period is divided into two sub periods of before trade liberalization i.e. (from 1960 to 1976) and after trade liberalization i.e. (from 1977 to 2012). The variables identified in the main objective of the study are tested hypothetically, and regression analysis and chow test were employed to make accurate and reliable conclusion. The result of Chow test proves a clear change of economic growth before and after trade liberalization of Sri Lanka and the finding of the study confirms a significant positive relationship between trade liberalization and economic growth of the country.
Highlights
Trade liberalization via the reduction or complete elimination of trade barriers has become the most popular economic policy of developed and developing countries today
Impact of trade liberalization on economic growth is assessed by comparing economic condition prevailed before and after trade liberalization during the period from 1960 to 2013 in Sri Lanka
Clear and accurate knowledge about the association of the variable concerned is tested by regression analysis and the Chow test is applied to examine the structural changes in economic growth of Sri Lanka
Summary
Trade liberalization via the reduction or complete elimination of trade barriers has become the most popular economic policy of developed and developing countries today. Developing countries are implementing free trade policies to achieve higher economic growth and reduce prevailing high unemployment rate. In Sri Lanka trade liberalization process is being increasingly evolved with the expectation of rapid economic growth since 1977. Researchers have investigated to answer the question of how the trade liberalization is linked with economic growth of a country. Their studies have produced a mixed bag of results and these results have created the issue more complex in the world. This study attempts to find empirical evidences on the relationship between international trade and economic growth of Sri Lanka.
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