WHICH IS BETTER FOR ECONOMIC GROWTH IN SRI LANKA, TRADE WITH SAARC OR TRADE WITH ASEAN?

M. G. C. N.  Madadeniya; S.  Sivarajasingham

M. G. C. N. Madadeniya Department of Economics and Statistics, University of Peradeniya
S. Sivarajasingham Department of Economics and Statistics, University of Peradeniya

Abstract

Should Sri Lanka trade with SAARC or ASEAN, in order to promote its economic growth? This is a question of interest, given the country’s recent trade agreement with Singapore and its prospects of bilateral trade with Bangladesh, Indonesia, Malaysia, Thailand and Vietnam. Starting from SAPTA in 1995, Sri Lanka has signed the most of its bilateral and regional trade agreements with its South Asian neighbours. However, the country is developing a new interest in trading with ASEAN countries. Given Sri Lanka’s present low economic growth performance, it is important to analyse whether the prospective trade agreements can accelerate the country’s economic growth. In this context, this study followed the Neoclassical growth theory to conduct a time series analysis in addressing the problem, ‘which is better for economic growth in Sri Lanka, trade with SAARC or trade with ASEAN?’, considering the period from 1990 to 2016. The main objectives of the study were to analyse the growth contribution of SAARC-Sri Lanka trade and ASEAN-Sri Lanka trade, and thereby draw policy implications of the findings. The results showed that trade with both regions promote economic growth in Sri Lanka in the long run. It was concluded that the prospective FTAs with ASEAN countries can be more beneficial for Sri Lanka’s economic growth because even with no FTAs signed during the period considered, trade with ASEAN showed a positive impact on Sri Lanka’s economic growth.