Impact of Trade Openness on Economic Growth in Sri Lanka

Abstract

Whether trade openness has a positive impact on economic growth is still open for debate. A group of researchers found in their study that it has a positive impact on the economy, whereas another group found that it has no effect or there is a negative impact. Therefore, this study examines the impact of Trade Openness on Economic Growth of Sri Lanka, over the period from 1990 to 2018, in a multivariate framework including trade openness, labour force, population, inflation and Fixed Direct Investment as repressors. Secondary data used for this study are from various sources such as the Central Bank of Sri Lanka and World Development Indicators (WDI). To test the stationarity of the data, the Augments Dickey-Fuller (ADF) (Dickey and Fuller, 19810) was used, and it uses the Auto Regressive Distributed Lag Bounds test for co-integration. The results of this study show that Trade Openness, which was the main variable, has a positive relationship with the Gross Domestic Product in Sri Lanka in the short run while a negative relationship is indicated in the long run.