Abstract:
The role of trade policy on economic growth has been the focus of
considerable academic effort. Openness, namely the sum of exports and imports to
Gross Domestic Product (GDP), has been considered one of the main determinants of
economic growth. Export-led growth postulates that exports consist the principal
channel through which the liberalization process can affect the output level and
eventually the rate of economic growth. Therefore this study investigates the
relationships between export and economic growth in Sri Lanka. An econometric model
has been developed and estimated in order to determine the direction of causality in
both, short and long run. The annual time series used for the estimation cover the time
period 1977 - 2009. The variables used in this study of export and economic growth of
Sri Lanka are gross domestic product (GDP), exports of goods and Services (EXP),
imports (IMP), gross fixed capital formation (GFCF) and per capita income (PCI).
The results reveal that export expansion leads to economic growth. It is also checked
that whether there is uni-directional or bidirectional causality between economic
growth, exports, imports, gross fixed capital formation and per capita income. The
traditional Granger causality test suggests that there is uni-directional causality between
economic growth, gross fixed capital formation, per capita income, exports and imports
and bidirectional causality between export and per capita income.
