Investigating the Causal Links between Economic Growth, Economic Uncertainty, and Unemployment: Evidence from Sri Lanka.

Abstract

Economic uncertainty has been a growing issue in the Sri Lankan economic context recently. Sri Lanka’s economy faced a collapse in 2022, primarily caused by macroeconomic mismanagement and a soaring debt structure exacerbated by the COVID-19 pandemic. This paper investigates the direction of causality among economic uncertainty, economic growth, and unemployment in Sri Lanka from 1991 to 2023, using the Granger causality analysis. Unlike existing studies that explore this relationship in a global and regional context, the current findings reveal a significant association where economic uncertainty granger causes unemployment rates, while also indicating that economic growth granger causes unemployment rates in Sri Lanka. However, there is no causal association between economic growth and economic uncertainty. Accordingly, policies aligned with the Sustainable Development Goals (SDGs) established by the United Nations (UN), specifically focusing on SDG 8: Decent Work and Economic Growth; SDG 9: Industry, Innovation, and Infrastructure; and SDG 16: Peace, Justice, and Strong Institutions. This study offers insights into diversifying the economy, ensuring quality education, and emphasizing the importance of maintaining strong government institutions for sustainable economic growth. In doing so, it contributes to the existing literature by providing insights into the