DOES INFRASTRUCTURE DEVELOPMENT MATTER FOR ECONOMIC GROWTH? THE SRI LANKAN EXPERIENCE

Abstract

The strong surge in investment with the liberalization in Sri Lanka in 1977 included extensive infrastructural development. Further, once the civil conflict ended in 2009, policymakers gave infrastructure improvement a lot of attention. However, impact of infrastructure on economic growth is still frequently debated and understanding the nature and duration of its impact is pivotal for effective policy formulation and investment strategies. In this context, the study examines whether infrastructure development has contributed to Sri Lanka’s economic growth in short run and long run, using Error Correction Model for the period of 1978 - 2021. We have made the assumption that economic growth can be described as a function of labour, capital, and the infrastructure index, which encompasses factors such as telephone availability, electricity power, road length, rail density, cargo handling at the ports and air kilometers. The study finds that the contribution from infrastructure is vital for economic growth of Sri Lanka and appropriate policies are prescribed to enhance infrastructure.