The role of R&D and economic policy uncertainty in Sri Lanka’s economic growth

Abstract

In this paper, we assess the role of investment in research and development (R&D) and economic policy uncertainty (EPU) in Sri Lanka’s economic growth experience. We do this by first determining which endogenous growth theories best explain the evolution of total factor productivity (TFP) in the country. Using historical time series data (1980–2018), we find that semi-endogenous growth theories best explain the evolution of TFP in Sri Lanka. This evidence suggests that R&D is critical to the country’s TFP expansion. We find that, through R&D, EPU has a crucial detrimental impact on TFP growth, although it is short-lived. Our findings are robust and have important implications for R&D investment and for moderating EPU.