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Abstract

International trade has become the engine of growth of world economies over the past few decades and main objective of this research is to investigate the causal relationship between trade liberalization and economic growth of Sri Lanka. The study is mainly based on secondary data collected from the Central Bank of Sri Lanka and in achieving the main objective data were collected on a specific time interval before and after the trade liberalization of the country. The study time period selected is from 1960 to 2012. To identify the impacts of trade liberalization, total time period is divided into two sub periods of before trade liberalization i.e. (from 1960 to 1976) and after trade liberalization i.e. (from 1977 to 2012). The variables identified in the main objective of the study are tested hypothetically, and regression analysis and chow test were employed to make accurate and reliable conclusion. The result of Chow test proves a clear change of economic growth before and after trade liberalization of Sri Lanka and the finding of the study confirms a significant positive relationship between trade liberalization and economic growth of the country.

Keywords: Trade Liberalization, Economic Growth, trade policies