IMPACT OF TRADE OPENNESS ON ECONOMIC GROWTH: THE LONG RUN AND SHORT RUN ANALYSIS OF SRI LANKA

Trade openness has a positive impact on economic growth, this debate is still open. Some researchers [1, 2] found in their study that it has a positive impact on the economy. Some researchers [3], Muller G. & Goldbach C., 2019 found it has no effects, or negative impact. Since, this study examines the impact of Trade Openness on Economic Growth in Sri Lanka, over the period from 1990 – 2018, in a multivariate framework including Trade openness, Labor force, Population, Inflation and Fixed Direct Investment as representatives. Secondary data is used for the study. The data are from various sources such as the Central Bank of Sri Lanka and World Development Indicators (WDI). To test for stationary of the data, the augmented Dickey-Fuller (ADF) (Dickey and Fuller, 1981) was used. It uses the Auto Regressive Distributed Lag Bounds test to cointegration. The results of this study shows that Trade Openness, which was the main variable, has a positive relationship in the short run while a negative relationship in the long run with Gross Domestic Product in Sri Lanka.