The role of FDI inflows and export on economic growth in Sri Lanka: An ARDL approach

Abstract

This paper examines the long-run and short-run relationship between Foreign Direct Investment (FDI) inflows, exports, and economic growth in Sri Lanka over 1980-2016. The study implies Autoregressive Distributed Lag (ARDL) bounds testing approach to reveal the relationship between the variables. The study indicates that FDI inflows have a positive and significant relationship with economic growth in the long-run and short run. If FDI inflows increase, GDP growth will increase. But for exports, it has a negative and significant relationship with economic growth in the long-run. If exports increase, the GDP growth will decrease. Sri Lankan exports strongly depend on primary goods. There is a risk of finite resources and price volatility. It's not surprising for developing economy like Sri Lanka. Also, in the short run, exports have a positive and significant relationship with economic growth. If exports increase, GDP growth will increase significantly. The findings suggest that both FDI inflows and exports influence economic progress in Sri Lanka. Based on emerging market economies, FDI inflows are useful in improving the production process in the host country, and hereafter it will contribute to quality exports and the economic growth of Sri Lanka. Policymakers should emphasize to gear up all the barriers for the economic development of Sri Lanka.

Globalisation and Economic Growth in India: An ARDL Approach

“…These results are an indication that exports and foreign remittances take more time for positive spillover effects on economic growth of India. The study of Pereira and Xu (2000) and Sultanuzzaman et al (2018) also found negative impact of exports on economic growth. Given the trade policy of countries and their composition of exports, it indicates that exports and foreign remittances take more time as compared to imports and FDI for positive spillover effects on economic growth of India.…”

“…In this study, ARDL and error correction metric (ECM) have been applied to investigate the relation and causality (if any) between economic growth and other variables in India. Many studies such as Pesaran et al (2001), Pacheco-Lopez (2005), Chaudhary (2006), Zachariadis (2006) and Sultanuzzaman et al (2018) have used ARDL which proved effective to examine dynamic relation between GDP and other related variables. This study attempts to estimate relationship between economic growth, FDI, exports, imports and foreign remittances through ARDL bound estimation both in the short run and long run.…”

“…Following Pesaran et al (2001), Narayan, (2005 and Sultanuzzaman et al (2018), ARDL Bound test has been applied to check for existence of long-run relationship between the variables. In line with Pesaran et al (2001), the calculated F-statistics (6.298074) as reported in Table 3 is significant and higher than lower bound I (0) and upper bound I (1) at 1, 2.5, 5 and 10% significance level.…”

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“…The econometric model used is a heterogeneous dynamic Autoregressive Distributed-lag (ARDL) as suggested Pesaran and Smith (1995); Hashem and Shin (1998); Pesaran et al (1999) and augmented bounds testing, which is used when variables are integrated of different orders (Pesaran, Shin, & Smith, 2001). Also of the most recent studies that have the ARDL is most effective tools and appropriate model to examine dynamic presentation between variable (Goh, Sam, & McNown, 2017;Paramati, Ummalla, & Apergis, 2016;Sultanuzzaman, Fan, Akash, Wang, & Shakij, 2018;Sunde, 2017). Proved Unlike a VAR model that is rigorously for endogenous variables, the ARDL model is fit for the combination of endogenous and exogenous variables.…”

The Developmental Government and Economic Development in Sri Lanka 2005–2019: Lessons from East Asian Developmentalism

“…210-220;Sahoo & Dash, 2012, pp. 217-252;Sultanuzzaman et al, 2018). Here, Sri Lanka's economic ties with China in particular were a key aspect of its explanation.…”