Does consumption expenditure induce the ecomonic growth? An empirical evidence from Sri Lanka

Indeed, consumption expenditure is a very important element of increasing the economic growth, which was confirmed by enough empirical studies in different countries. But in Sri Lanka there is no evidence regarding the relationship between the consumption expenditure and economic growth. In order to test this relationship, this study used both multiple regression and Johansen and Juselius cointegration techniques by using time series data during the period of 1975 to 2014 of the following variables: exports, gross domestic product, consumption expenditure of households, and official development assistant. In this study, both techniques confirmed that the consumption expenditure positively impact on the economic growth and moves with the economic growth in the long - run period. Thus, this study strongly confirmed that the consumption expenditure in Sri Lanka induces the economic growth over the sample period. Therefore, this study recommends, if the policy makers should develop the policy to promote the consumption expenditure, the economic growth should be positively moved, so policy makers have to design consumption promotion policy.