The role of FDI inflows and export on economic growth in Sri Lanka: An ARDL approach

Figures & data

Table 1. Descriptive and correlation analysis

Variables	lnGDP	lnFDI	lnEx
Mean	0.672060	8.215286	9.670738
Median	0.698918	8.246524	9.745114
Maximum	0.961164	8.980422	10.24174
Minimum	−10.189043	7.295376	9.111508
Std.Dev.	0.209366	0.524649	0.369062
Observations	37	37	37
lnGDP	1
lnFDI	0.181885	1
lnEX	0.369324	0.338371	1

Source: Authors Calculation

Table 2. Unit root tests

ADF Test			DF-GLS Test		PP Test
Variables	t-Statistic	P.-Value	t-Statistic	P.-Value	t-Statistic	P.-Value
lnGDP	−4.9.1637	0.0003*	−4.859528	0.0000*	−4.901637	0.0003*
ΔlnGDP	−9.144552	0.0000*	−9,274,689	0.0000*	−19.46226	0.0001*
lnFDI	−1.086559	0.7105	−0.781230	0.1399	−0.639385	0.8491
ΔlnFDI	−6.633720	0.0000*	−6.659566	0.0000*	−9.719546	0.0000*
lnEX	−0.223849	0.9263	−0.457291	0.6509	−0.181980	0.9319
ΔlnEX	−6.272271	0.0000*	−6.143064	0.0000*	−6.302327	0.0000*

Notes: Δ denotes first differences. Significant at * 1% level ** 5% level and *** 10% level; ADF, DF-GLS, and PP Tests are determined by the Mackinnon (1996) formula.

Source: Authors Calculation

Table 3. Lag length criterion

Lag	LogL	LR	FPE	AIC	SC	HQ
0	9.280803	NA	0.000137	−0.380655	−0.244609	−0334879
1	84.77951	132.6947	2.45e-06	−4.410880	−3.866695*	−4.227778*
2	94.43428	15.21358	2.39e-06	−4.450563	−3.498240	−4.130135
3	107.3011	14.93558*	1.97e-06	−4.684916	−3.324454	−4.227162
4	117.7963	12.72142	1.94e-06*	−4.775532*	−3.006932	−4.180452

Notes: * indicates lag order selected by the criterion. LR: Sequential modified LR test statistic (each test at 5% level), FPE: Final prediction error, AIC: Akaike information criterion, SC: Schwarz information, and, HQ: Hannan-Quinn information criterion.

Source: Authors Calculation

Table 4. ARDL Bound test estimates

K	F-Statistic	Significant	Lower Bound,I(0)	Upper Bound,I(1)
2	8.262815	10%	2.63	3.35
		5%	3.1	3.87
		2.5%	3.55	4.38
		1%	4.13	5

Source: Authors Calculation

Table 5. Long-run estimates

Estimated long-run coefficients: GDP growth rate as a Dependent Variable
Variables	Coefficient	Std. Error	t-Statistic	Probability Value
ΔlnFDI	0.976700	0.217752	4.485370	0.0002*
ΔEX	−1.217280	0.320352	−3.799817	0.0011*
Constant	4.346258	1.342828	3.236645	0.0041*

Note: Significant at * 1% level ** 5% level and *** 10% level

Source: Authors Calculation

Table 6. Error correction representation for the ARDL model (short-run estimates)

Variables	Coefficient	Std. Error	t-Statistic	Probability Value
ΔlnFDI	0.667232	0.199092	3.351372	0.0032**
ΔEX	1.189432	0.687030	1.731267	0.0988***
$EC{M}_{t-1}$*	−2.231042	0.361880	−6.165140	0.0000*
R-squared		Adjusted R-squared		Durbin–Watson(D–W)
0.765444		0.673661		1.8801155

Note: Significant at * 1% level ** 5% level and *** 10% level

Source: Authors Calculation

Table 7. Diagnostic tests

	Obs*R-square	F-Statistic	Probability*
Serial correlation: Breusch–Godfrey Serial Correlation LM Test	0.782893	0.461710	0.3763
Heteroscedasticity: Breusch–Pagan–Godfrey	13.43166	1.143997	0.3385
Heteroscedasticity: Harvey	15.20149	1.423480	0.2306
Heteroscedasticity: ARCH	0.668798	0.640382	0.4135
Heteroscedasticity: Glejser	15.18442	1.420520	0.2315

Source: Authors Calculation

Figure 1. Stability test (CUSUM).

Figure 2. Stability test(CUSUMQ).

Source: Authors Calculation

Table 8. VECM Granger causality robustness checking

VECM Granger Causality, lnGDP as a Dependent Variable
Wald test(Short-run estimates) F-Statistics & P-Value			VECM long-run estimates	Decision of long-run & short-run causality
ΔlnGDP	ΔlnFDI	ΔlnEX	ECM t-Statistics P-Value
—	3.455952	1.956569	−2.317115	ΔlnFDI$\to$ΔlnGDP
—	0.0291**	0.0982***	–2.152848	ΔlnEX$\to$ΔlnGDP
			0.0451**

Note: Long-run and short-run probability (P) Value significant at * 1% level ** 5% level and *** 10% level

Source: Authors Calculation

Figure 3. Causality between FDI inflows, export, and economic growth: Sri Lanka.

MacKinnon, J. G. (1996). Numerical distribution functions for unit root and cointegration tests. Journal of Applied Econometrics, 11, 601–618.

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