Abstract:
Macroeconomic variables such as interest rates, inflation and exchange rates play
a vital role in the economic performance of any country. This study sought to
establish the relationship between macroeconomic variables and economic growth
in Sri Lanka. The factors identified in the study are budget deficit, interest rate,
inflation rate and money supply. This study attempts to find out the impact of
macroeconomic variables on economic growth in Sri Lanka by using Regression
Analysis, Correlation analysis and Hypothesis test are used for the period 1985 to
2019. Annual time series data were used in this study. Data on GDP growth rate,
budget deficit, inflation, interest rate and Money supply growth were collected
from annual report of central bank and world development indicators published by
International Monetary Funds. The empirical results show that for Sri Lanka, for the
period of 1985 to 2019, government budget deficit has significant impact on
economic growth after auto regress the model. The effect of inflation rate, interest
rate and money supply growth have no significant relationship on the GDP growth.
Similarly, budget deficit has positive impact of economic growth as well as inflation
rate and money supply have positive relationship on economic growth. But interest
and economic growth has negative relationship. This study is focused to discuss the
impact of macroeconomic variables on economic growth by using budget deficit,
inflation, money supply growth, interest rate, Researchers can use many other
variables such as private investment, government debt, foreign direct investment
and government expenditure etc. for further research study.
