The long-run Effect of Services Exports on Total Factor Productivity Growth in Sri Lanka: Based on ARDL, FMOLS, CCR, and DOLS Approaches

Abstract

This research paper investigates the importance of services exports (SEXP) on total factor productivity (TFP) growth in Sri Lanka analyzing time series data from 1984 to 2013. The study employs a range of econometric models, namely Johansen’s cointegration (JJ) test, autoregressive distributed lag model (ARDL), fully modified least squares method(FMOLS), canonical cointegration regression (CCR) and dynamic ordinary least squares method(DOLS), and come up with a more robust result. The main finding is that SEXP, gross capital formation (GCF), and labor force (LF) significantly influence to promote TFP in the long- run in Sri Lanka. The result is stable and robust as all the models yield consistency result. The long-run coefficient of SEXP ranges between 0.026121(JJ), and 0.101286(ARDL). Hence, proper policy formulation to encourage SEXP could be of vital to reap economic benefits via enhancing the productivity in the overall economy as the export market provides more space for growth, against the quickly exhaustible domestic demand for services in Sri Lanka.