Quotation Herath, Shanaka. 2010. The Size of the Government and Economic Growth: An Empirical Study of Sri Lanka (Revised version). SRE-Discussion Papers 2010/05.




The new growth theory establishes, among other things, that government expenditure can manipulate economic growth of a country. This study attempts to explain whether government expenditure increases or decreases economic growth in the context of Sri Lanka. Results obtained applying an analytical framework based on time series and second degree polynomial regressions are generally consistent with previous findings: government expenditure and economic growth are positively correlated; excessive government expenditure is negatively correlated with economic growth; and an open economy promotes growth. In a separate section, the paper examines Armeys' (1995) idea of a quadratic curve that explains the level of government expenditure in an economy and the corresponding level of economic growth. The findings confirm the possibility of constructing the Armey curve for Sri Lanka, and it estimates the optimal level of government expenditure to be approximately 27 per cent. This paper adds to the literature indicating that the Armey curve is a reality not only for developed economies, but also for developing economies.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title The Size of the Government and Economic Growth: An Empirical Study of Sri Lanka (Revised version)
Title of whole publication SRE-Discussion Papers 2010/05
Year 2010


Herath, Shanaka (Former researcher)
Research Institute for Spatial and Real Estate Economics FI (Details)
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