The impact of energy consumption and financial development on economic growth in Sri Lanka: an ARDL bounds testing approach

Abstract

Economic growth is the symbol of progress; it refers to the increase in the productive capacity of a country. Energy is fundamental to human survival and economic growth. It is the basis of for millions of years, animals in the form of food and meat are using for survival of human lives. Energy means anything that has an ability to modify and transform. The prime force of all the economic activities and industrial production is energy It is considered sustenance and helping hand of an economy. It is also important for socio-economic development. Most countries especially the less developed countries have benefited from transfer of technology in the process of exploration, production and marketing.

Financial development consists of approaching financial activities in a country, such as foreign direct investment and promoting banking activity, stock market activity, and domestic credit to the private sector, which influence on economic efficiency and energy demand 1% The reason to put the financial development in the production is that it lets people easy to get loan (cheaper cost) in some items, for example household appliances, mobiles, house, et al. Therefore, it may have a positive effect on economic growth .

Although many studies have investigated the energy consumption- economic growth nexus and the financial development-economic growth nexus, very few studies have examined the relationship among energy consumption, financial development, and economic growth with production function. Therefore, this study performed an in-depth analysis of the impact (both in short run and long run impact) of energy consumption and financial development on economic growth with production function and an advanced methodology-ARDL bound testing procedure for the empirical study of Sri Lanka.