Sociopolitical Instability and Economic Growth Empirical Evidence from Sri Lanka

Abstract

Sociopolitical instability severely affects economic growth in short and long run. This study analyzes that sociopolitical instability measured by proxy measure; annual growth rate of tourist arrivals in Sri Lanka during 1960-2005 adversely affects economic growth. Our empirical findings based on ordinary lease square econometric estimation, show that sociopolitical instability negatively and significantly affect economic growth. Reduction of economic growth rate (-0.032) due to the sociopolitical instability exceeds the improvement of economic growth (0.027) by increasing of physical capital accumulation. It also exceeds the improvement of economic growth (0.017) by increasing of human capital accumulation. Years which had more sociopolitical conflicts, violence within and between communities and war between government forces and Tamil tiger had lower economic growth than years which had peace talking between government and leaderships of minority, preparing political proposal for peace, effective peace or political agreements and none or less violence. Sociopolitical instability adversely affects economic growth in long runs with insignificant. Policy implications suggest that peace in Sri Lanka makes foundation for economic development based on economic growth. Sociopolitical stability plays major role in determination of economic growth.