Export and economic growth nexus in Sri Lanka: A time series analysis

Abstract

Introduction The nature of the relationship between exports and national output growth has been one of the most debated in the recent past. However, still a little consensus in the theoretical and empirical literature in international trade and development economics can be seen. Central to this debate is the question of whether strong economic performance is export-led or growth-driven. This question is important because the determination of the causal pattern between export and growth has important implications for policy-makers' decisions about the appropriate growth and development strategies and policies to adopt. Aiming at a rapid economic growth, governments of the developing world have pursued export promotion strategies, with the belief that export might overcome natural limits and constraints to economic growth which exists in their domestic economies. Sri Lanka is not an exception to this case, which implemented export oriented strategies, particularly after opening up the economy in 1977. The Export-Led Growth (ELG) hypothesis suggests that there is a strong positive linear relationship between a country’s exports and economic growth. This interesting question has been the subject for a number of research works in the recent past. Many econometric analyses have been performed to identify the export causality towards economic growth with varying degree of results.