Impact of major economic variables on economic growth in Sri Lanka

Abstract

Economists argue that the money supply, exchange rate, inflation positively impacton economic growth of nations. In Sri Lankan context, this statement was not testedeconometrically and the economic growth of Sri Lanka is more effect by someeconomic variables in recent years such aS money supply, exchange rate' governmentdebt, government expenditure, trade of baiance and inflation which were indicated asmajor economic variables in Sri Lanka. Therefore, the aim of this study was toscrutinize the impact of major economic variables on Sri Lankan economy'To exam this objective, this study was considered the time series data from the periodof 1954 to 2016and used two types ofvariables such as dependent and independentvariables. Here, ttre economic growth (gross domestic product) was considered asdependent variable, and Money supply, Exchange rate, inflation, government debt'government expenditure and trade of balance were deemed as independent variables'In the meantime, the multiple regression method and simple regression method wereused to test the impacts of major economic variables on economic growth of SriLanka.According to the analytical results, the money supply had only significant impact oneconomic growth of Sri Lanka at lYosignifrcant level and it was positive impact whileother selected major economic variables (exchange rate, government debt'government expenditure, trade of balance and inflation) had insignifrcant impact oneconomic growth of Sri Lanka. The R- squared of the estimated model was 24'60/owhich was indicated that the estimated model was desirable' However' the moneysupply was only impacted on economic growth by 19'6%