Applicability of Openness-led Growth Hypothesis in Sri Lanka: An ARDL Bounds Test

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Applicability of Openness-led Growth Hypothesis in Sri Lanka: An ARDL Bounds Test

Navaratnam Ravinthirakumaran


South Asia Economic Journal
15(2) 241–263
©2014 Research and Information
System for Developing Countries &
Institute of Policy Studies of Sri Lanka
SAGE Publications
Los Angeles, London,
New Delhi, Singapore,
Washington DC
DOI: 10.1177/1391561414548951



Abstract

An openness-led growth hypothesis investigates the causal relationship between trade openness1 and economic growth. Indeed, trade openness can stimulate economic growth by enhancing the international flow of knowledge and innovation and by allowing economies of specialization, not only in the production of goods but also in the generation of new knowledge and new inputs into production. The purpose of this article is to empirically examine an openness-led growth hypothesis, using the case of Sri Lanka for the period from 1965 to 2012. The article uses the recently developed autoregressive distributed lag (ARDL) bounds test for cointegration developed by Pesaran et al. (2001). The empirical results confirm the validity of the openness-led growth hypothesis for Sri Lanka.

JEL: C32, F20, F41, O11

Keywords: Openness-led growth, Sri Lanka, ARDL bounds test, Granger causality

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