Exports, imports, and economic growth in Sri Lanka: evidence from causality and co- integration analysis

Abstract

This study aims to find long run causal relationship between the export and import on economic growth in Sri Lanka over the period from 1962 to 2015 using annual data. Johansen co-integration technique and vector error correction model (VECM) are used to investigate the relationships. The empirical results do not confirm a bidirectional causality between any of the variables considered but there is a unidirectional causality between export and economic growth in the short run. Further, it finds that there is a long-run equilibrium relationship between export and economic growth. Major implication of our findings is that export is matter for the economic growth of Sri Lanka than import.