The Relationship between Economic Growth and International Trade in Sri Lanka: A Review

Abstract

International trade is the exchange of capital, goods and services across the international borders or territories which could involve the activities the government and individual. There are three main facts aware in international trade. They are supply of productive factors, Method of productive technology and efficiency of productive factors. Economic growth means an increase in real gross domestic product (GDP). This increase in the value of national output. According to the Smith’s absolute theory, specialization in the production of only few goods by nations will lead to increase the efficient and production. That means autarky level price differences will lead to international trade. Because of this theory the international trade is a reason for economic growth. The theory of comparative advantage was present by David Ricardo, the theory is known as the main principle of the international trade that explains mutually beneficial trading relationship between countries. Because of this theory we can said, the international trade help to the country’s economic growth. Any economy can reach to the economic growth by connecting with an open economy. Therefore, to appearance economic growth mainly important thing is international trade. When it is consider about the theoretical facts of international trade and the economic growth, the method of analyzing international trade and economic growth by Heckscher Ohlin theory (HO theory) and the idea of the capitalist economist are analyze by this article. Before the 1977, Sri Lanka referred enclosed economy and after the 1977 Sri Lanka referred, the open economy and they used international trade after that period. This is the reason of economic growth in Sri Lanka. This article explain the relationship between economic growth and international trade in view of economic performance of Sri Lanka.