The Impact of Export and Import on Economic Growth in Sri Lanka

Abstract

This study investigates the impact of exports and imports on Sri Lanka’s economic growth from 1995 to 2023, using annual time series data obtained from the World Bank and other reliable sources. The analysis employs a log-linear regression model with GDP per capita as the dependent variable and exports and imports of goods and services as the independent variables. The empirical results reveal that both exports and imports have a positive relationship with economic growth in Sri Lanka. However, imports exhibit a stronger and more statistically significant effect on GDP compared to exports, suggesting that imported intermediate and capital goods play a crucial role in enhancing domestic production capacity. The high R² value (0.97) indicates that trade variables explain a substantial portion of GDP variation during the study period. These findings support the view that trade openness promotes growth, but also highlight the importance of the structure and composition of trade. The study concludes that while export expansion remains vital for sustainable growth, managing the quality and purpose of imports—particularly prioritizing productive over consumer imports—is essential for long-term economic stability and development in Sri Lanka.