Does Public Sector Crowd out the Private Investment in Post War Sri Lanka?

ABSTRACT:Given the government end the civil war in 2009, it was expected that Sri Lanka has a significantpotential to have an economic boost with the favorable condition for private investment. But, after a decade ofcivil war, it is realized the fact that expectations were overestimated and the country suffers from similar typesof economic drawbacks but in different aspects. Even though the government took several measures to stimulatethe private sector, it seems that it has not been effectively implemented. Thus, this paper mainly focuses oninvestigating two questions. Firstly, whether the private investment has an impact on the economic growth of SriLanka during the post-war period (2010 – 2019). Secondly, whether the public sector; specifically public debtand public expenditure, has a negative impact on the country’s private investments during the considered period.Autoregressive Distributed Lag (ARDL) approach was employed for the time series analysis. The main findingof this study is, while private investment contributes to economic growth in Sri Lanka, foreign debt anddomestic debt tends to crowd-out private investment.

Keywords:Autoregressive Distributed Lag model, Domestic Debt, Economic Growth, Foreign Debt, Private Investment, Public Investment