Does Oil Price Effect the Gross Domestic Product of Sri Lanka?
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Date
2020
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Publisher
Uva Wellassa University of Sri Lanka
Abstract
Energy is one of the critical determinants of economic growth, development, and welfare
status of any country in the world. The impact of oil price changes on macroeconomic
variables is mostly documented in academia and the degree of impacts are varied from
energy-exporting vs. importing countries, dependency on non-renewable energy vs.
renewable energy, and small country vs. large country. In this context, this study aimed to
explore the impact of oil price changes on economic growth in Sri Lanka by employing
time-series econometric techniques. The period covered by the study was 1987 to 2017,
which coincides with the open economic policy phase. The unit root test revealed that all
the variables become stationary at their first difference form. The Johansen Co-integration
test confirmed the existence of a long-run association between variables. The Vector
Error Correction Model indicated the negative impact of local oil prices on the Gross
Domestic Product in Sri Lanka. The negative impact of oil price changes on economic
growth in Sri Lanka was mainly due to the higher dependency on imported energy (fossil
fuel), inadequate adoption of energy-efficient technologies in the production system,
inadequate focus on alternative or renewable energy sources by the economy, higher
dependency on traditional export items, and less responsiveness of supply-side adjustment
to price changes or exchange rate depreciation to enhance export. The study emphasized
the need to move the economy towards renewable energy sources and the adoption of
energy-efficient technologies in the production system to minimize the adverse fallouts of
the oil crisis in the world market on the economic development of the country.
Keywords: Economic growth, Non-renewable energy, Oil price, Renewable energy, Sri
Lanka
Description
Keywords
Economic, Financial Management, Economic growth, Marketing, Management Sciences, Oil price