Abstract:
Financial sector plays an important role in economic development. Most of
the researchers have proved it logically relating to their economies therefore
by conducting this study, it would identify whether there is a relationship
exists between financial sector development and economic growth in Sri
Lanka and this research would be more useful to policy makers to implement
the financial and economic policy in the country since the financial sector
performs a major role in any economy as a resource allocator. Hence, financial
sector contribution is very important for the whole economy. Under the
classification of the research design, this research belongs to the conclusive
design as this research is to test specific hypotheses and examine relationships.
Under the conclusive design this is a causal research since it analyzes the cause
and effect relationship. This analysis used data spanning from 1990 to 2015 to
test the causality and impact of financial sector development on the
determination of economic growth.” Economic Growth” which is the
dependent variable in this study was measured through GDP per Capita.
Variable dependents are “Liquid Liabilities, Credit to private sector”, “Credit
provided by banks”. For this study, it was used secondary data sources such
as central bank reports and international financial statistics to collect the
required data which were easily accessible and available. All the estimations
were carried out following the routine performed in E-Views software.
Through that Unit root test and Least Square method were performed. The
findings of this research confirm the existence of weak positive relationship
between financial sector development and economic growth. It reveals the
existence of the relationship between the dependent variable per capita GDP
and the three independent variables; credit provided to private sector, credit
provided by banks and broad money supply (M2) which implies the financial
development of Sri Lanka, and the economic growth shall indicates by the per
capita GDP.