Export led growth hypothesis in the context of Sri Lanka

Abstract

Introduction

As many schools of thoughts emphasize, economic growth is a complex process which depends on many socio-economic and political factors. Economists have attempted to identify the major determinants of economic growth through various means, and theories emphasizing capital accumulation, consumption level, trade, economic stability and political environment. In this study, the author gives prime attention to the export led- growth hypothesis which simply states that expansion of exports is a significant determinant of the economic growth of a country. Further, the export led growth hypothesis emphasizes exports as the engine of economic growth along with labor and capital. Even though few studies have been conducted regarding the particular area by adopting various methodologies and taking Sri Lankan experience into account, results of most of those studies show an insignificant relationship between exports and economic growth. On the other hand, one of the major suggestions of the Vision 2025 policy framework is that of developing Sri Lanka as an export-oriented economy. In this context, there is an apparent mismatch between empirical results and the policy framework of the country. Therefore, conducting a comprehensive analysis is called for. Hence, this study attempts to examine the validity of the export led growth hypothesis (ELGH) for Sri Lanka.