Polynomial distributed lag approach to analyse the factors affecting economic growth of Sri Lanka

Abstract

The purpose of this study is to examine the effects of various factors on economic growth of Sri Lanka, using the annual data over the period of 1975 to 2014. The stationarity properties were checked by ADF, PP and KPSS unit root tests. Polynomial distributed lag approach was employed to determine the impact of various factors on economic growth. Findings of distributed lag structure show that the impact of consumption and trade balance on economic growth are not significant to the model whereas the impact of consumer price index, expenditure, foreign direct investment and investment on economic growth are significant.In addition to that the Granger causality test was performed to assess the causal relationship between two variables. The results were confirmed that the existence of unidirectional causality from foreign direct investment to economic growth and from economic growth to trade balance and also the existence of bidirectional causality between economic growth and expenditure and investment and economic growth.